The Telegraph
Since 1st March, 1999
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Airlines toy with demand-driven fares

New Delhi, Dec. 2: Attention, frequent fliers! If you’re by now used to seasonal changes in plane fares, here’s a little something that will take some more getting used to: prices for specific flights and on specific sectors could soon be raised or cut on a daily basis.

Starting as early as next year, your travel desk could tell you that if you fly Calcutta-Delhi early in the morning, you could get a 10 per cent discount; during office commuting hours you could get 20 per cent off; in the afternoon you would have to pay full fares; and at bed-time, you could get a hefty 50 per cent cut.

Under the new system — called flexi fares — prices would be calculated on demand and supply. If ticket off-take in a certain sector or a certain flight does not a reach a certain target, fares on that flight or sector could drop. If demand shoots up, they could go up.

“The whole concept of flexi fares in the West, which we will eventually emulate, is that fares are raised or reduced, very often on a daily basis, for specific sectors and specific flights depending on demand and supply,” said A. Srivastava, director with Indian Airlines.

“We are moving towards sector and specific flight fare changes. In fact, you could say we are already settling into a sector specific system.”

The system of flexi fares is very different from the one followed in India where fares are revised according to season — usually cut during the monsoon and raised in winter.

In a small way, however, the process is already happening. Night flights between metros, mostly on IA and Air-India, are cheaper than day flights.

“But in a dynamic situation, there will be fare differences between afternoon and morning flights, between weekday and weekend flights,” said Kapil Kaul, senior vice president, Centre for Asia-Pacific Aviation, a trans-national aviation consultancy.

To bring in the required fare response structure, airlines would have to bring in more sophisticated yield management technology that ensure their returns are maximised. This would involve centralised monitoring of yields, seat factors and fleet availability on a real-time basis.

“High gearing and cost structures faced by airlines in India means they are not comfortable with flexi fare offerings like the cheaper Apex fares. But they have been forced to adopt flexi fare attributes in response to market demand dynamics,” said Kaul, who has worked with several airlines in India.

At the moment, the airlines have neither the yield management systems nor the inclination to offer real time fare changes. They also need to react to only one variable — demand for seats. The number of aircraft licensed to fly Indian skies is fixed.

IA plans to buy up to 43 new planes, likely to be a mix of Airbus 319s, 320s and 321s. This is likely to be approved by the Union cabinet after the Assembly election process is over. The aircraft are likely to start reaching Indian shores within one and a half years of the order being placed.

In the interim, IA is likely to dry lease (aircraft without crew) between four to eight Airbuses. Air Sahara similarly plans to expand its fleet from 16 to 45 — comprising a mix of long-haul aircraft, new generation Boeing jets and regional jets — over the next few years, bringing in six in the next six months.

Next year is also likely to see Royal Air, the new avatar of Modiluft after its take-over by NRIs, launch services with about six aircraft as well as a possible re-launch by the now defunct East West Airways.

“All this will result in tremendous oversupply. None of these airlines can avoid buying the new planes they are ordering. IA needs to replace old aircraft and expand. Sahara needs a certain minimum critical mass and the new airlines have been trying to take off for quite some time. But the point is all this will create an oversupply situation,” said Kaul.

Analysts believe this oversupply and the need to bring in new passengers will force airlines to start investing in fresh yield management technologies and start offering dynamic flexi fare options.

“The market will mature by that time. Indians are by nature adaptable,” said Kaul. Corporate travel desks will start planning their executive transportation taking into account discounts and other freebies, which would be thrown in at different times of the day and on different sectors.

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