Wednesday, February 18, 2009

Low Cost Airlines- Yo -Yoing fares

Low Cost Airlines as an industry was at one point in time the poster-child of liberalised India, the example quoted to show people what happens when an industry is opened up to competition and you let market forces take care everything. The results were there for everyone to see, the air fares could be compared with the AC Train fares, and at time it was cheaper to fly than catch a train and spend a whole day travelling. These reduced fares brought people in droves to the airports, pushing the basic primary demand . There were instances when the first-time air travellers brought with them tiffin boxes to eat during the journey, as they use to do in the trains, though the low cost airliners were not amused by this as they wanted to increase their revenues by selling food also.

But the higher fuel prices brought the honeymoon to and end, and we saw the pioneer of the concept Deccan Airways giving way to Kingfisher Red. And in all newspapers the headlines were the stories of the losses which all the airlines were making and the layoffs and all. The fares sky rocketed and the number of air travellers dropped. Add to this the impact of slowing down of the economy and even corporates started rethinking their travel plans.

But then with the drop in the fuel prices the fares were again brought down, infact many of the low cost airlines reintroduced their 99/- fares on popular routes. But consumers do not act just on price tags, especially the first-time travellers , who would be the target for these promos. The perception of what is being charged is what works, in the initial days of the low cost air travel there was so much of hype on the fact that air travel has become affordable. This hype was not the just because of the paid promotions that were being done by the air line companies but also by the positive press coverage it was generating. Now when the prices were hiked this perception has been altered and people have started perceiving air travel to be expensive. This might explain why in Jan inspite of almost 50% reduction in the fares there was a negligible increase in the passengers (from 33.73 lakhs in Dec to 33.76 in Jan 2009 , vs 39.34 lakhs last Jan), though slowdown in the economy might also be contributing to this.

Adding to the mess , low-cost airlines abruptly hiked their fares last week citing drop in passengers , and today they have again reduced it by 20%. This yo-yoing of fares by the airline industry is also not helping the perception issue. The regular traveller would anyway take the best out of the price reduction and you are no longer in the consideration set of the first-time travellers a catch 20-20 situation . a time for a drastic shift in the approach of the airlines companies towards their pricing policies ?????



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