The Hindu : Competition in the skies

Online edition of India's National Newspaper
Friday, May 30, 2003

Opinion

Opinion - Editorials

Competition in the skies

ON THE FACE of it, it is difficult to dispute the observation that the domestic air traveller has never had it so good. The ongoing fare wars in the civil aviation sector characterised by "super saver" packages, apex fares and several other promotional schemes do suggest the dawn of a new era for the air travellers but it will be naive to exaggerate its significance. While making air travel affordable to a much wider passenger category, the latest round of fare discounting — the first time was during last summer — does have a flip side. Even from the point of view of passengers (most of the favourable reactions have been passenger-centric), there ought to be a recognition that lower, affordable travel is possible only under certain conditions. Typically the lower fares are available only for confirmed bookings made considerably in advance, sometimes even a month prior to the date of travel. There are onerous cancellation charges and that straightaway negates one of the prime motivations for preferring air travel to, say, railway travel. Other promotional schemes, now on offer, require the passenger to buy four or six tickets at one go. While there would be savings by taking this route, it will require rather intricate advance planning on the part of the traveller to make full use of the offer, more so when it is also bound by a rigid time frame. With those and other conditions, it will be difficult for most air travellers to reap the benefits of what is essentially a flexible pricing strategy of the airlines. On their part, all the airlines, Jet Airways and Indian Airlines joined in by the much smaller Sahara and now Air India (in its domestic sector), have a point or two to make through their latest promotional schemes.

The first of those relates to the commercial judgment to fix a fare structure to woo a particular type of air traveller. Contrary to the media hype, no airline offers discounted fares for a significant proportion of the available seats, the outer limit in most cases being about 10 per cent. The logic clearly is to sell even at a discount a seat that will otherwise go vacant. Getting the correct planeload factor, the equivalent of a break-even, is a key objective but it is not certain whether sound financial and accounting principles have been applied in every case. More to the point, the civil aviation policy and with it the economics of the industry are rather opaque. It is virtually impossible to gauge the commercial effectiveness of the promotion with the available data. It is likely that all airlines would fly more passengers than they would have but will they simultaneously enhance their profitability? The other argument of popularising air travel among those who would normally travel by train will take an even longer time to be verified. The age of cheap air travel has not yet arrived in India. It will take further attempts and most certainly a continuance of the promotional offers throughout the year — and not in the lean seasons alone — for flying to become a habit among the non-traditional air travellers.

A major point of debate has to do with competition. There can be no argument that the spate of promotional fares would have been unthinkable at a time when the airline business was a monopoly. Its transition to a duopoly with a third airline also doing its bit has resulted in a dramatic transformation in the business, not just in the ways the tickets are priced. Yet, as seen quite dramatically in the telecom sector, competition without an effective, transparent policy can do more harm than good to all the stakeholders. Another critical issue that has surfaced recently has to do with the ownership patterns in the airline industry. A recent CAG report has found fault with the Indian Airlines' schemes of last year. Like the consequences of flexible fares themselves, the role of the public sector in a competitive, service industry has to be clarified.

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