AI, Kingfisher & Jet may go no-frills on most domestic routes

NEW DELHI: Amidst growing concern over the financial health of airlines, the top three carriers of the country—Air India, Kingfisher Airlines and Jet Airways—are planning to convert most of their domestic flights into no-frills services. This would result in more attractive fares for consumers, but may further pull down the yield of airlines.

Since the three airlines together control over 60% of the domestic market, the proposed move would significantly curtail full-service operations in the country while the market share of no-frills services would expand in a big way.

The move, which would cheer consumers, comes at a time when airlines are finding it difficult to improve the yield. According to an industry estimate, average passenger tariff has halved to Rs 3,000 in the last five years. The cost of operation of airlines has, however, gone up during this period resulting in a shortfall in revenue.

While Jet Airways has said it will increase the number of flights on its JetKonnect network to 160 by October out of its total 290 flights on domestic routes, Kingfisher has already shifted 70% its 365 domestic flights a day to the no-frills brand.

The country’s largest carrier by fleet size, Air India, has said it will gradually shift 75% of its domestic flights to its low-cost entity Air India Express. The increased supply of seats in the market may force airlines to sell tickets below cost.

“Service criteria between full-service carriers and low-cost airlines is shrinking. Full-service airlines, which have shifted capacity on low-fare brands, are doing away with business class, thus increasing seats. By doing this, airlines are putting pressure on the low-frills market. This will eventually hurt everybody,” Amadeus India managing director Ankur Bhatia said.

Domestic carriers are together estimated to have lost Rs 10,000 crore in 2008-09 mainly on account of high fuel price in the first half of the fiscal and excess capacity.

“There is still 20% additional capacity in the market. The industry needs to discipline itself and cut back capacity. We have been loudly telling people that we are cutting capacity. In the past one year, we have reduced 20% of our capacity,” said a Jet Airways official who did not wish to be identified said.

Excess capacity and intense competition force carriers to sell tickets below cost in order to fill seats. This reduces the yield per seat of the airline. For example, Air India’s yield in terms of returns per kilometre (RPKM) in 2007-08 decreased to Rs 3.13/RPKM from Rs 3.25/RPKM in 2006-07, notwithstanding an improvement in load factor.

In 2008-09, the airline’s yield stood at Rs 4.6/RPKM and Rs 2.99/RPKM for its narrow and wide-body aircraft, respectively.

In the last one year, air travellers have shifted to low-cost airlines with corporate houses trimming their travel budget. This has helped no-frills airlines SpiceJet and JetLite come out of the red and report profit.

SpiceJet reported a net profit of Rs 26.34 crore in the first quarter ended June 31 as against a net loss Rs 129.22 crore in the same quarter of 2008. JetLite (formerly Air Sahara) also posted a marginal profit of Rs 2.2 crore in the first quarter of the current fiscal.