The Telegraph
Since 1st March, 1999
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Chill ahead, air fares set to creep up

New Delhi, Oct. 11: With winter and the busy travel season approaching, domestic air fares that had dived are poised to start travelling up once again.

But low-cost airlines like SpiceJet said they would not give up their cost advantage and even if fares are raised, they will consciously try to keep themselves cheaper compared with the full-service airlines.

Airlines expect fares to creep up by 5 to 10 per cent, though oil prices have come down, mostly through unannounced increases.

“We will keep ourselves cheaper than our rivals. Low fares are one of the key differentials. Seat factors are high in airlines like SpiceJet and Air Deccan because of this. We will maintain a price differential even though fares are likely to go up in winter,” said SpiceJet director Ajay Singh .

Full-service airlines like Jet that have been hit by heavy losses were nursing hopes that other airlines would agree to less price competition. The government, which initiated informal talks on losses and price competition, would also like the airlines to work out some system that ensures there is no repeat of the nineties’ financial crash landings.

But a cartel-like agreement looks remote with smaller, low-cost operators contending that their operational costs and pricing structures will always be different from bigger airlines like Indian, Jet and Sahara.

“Prices have already started going up. It’s unannounced but it’s happening,” said U.K. Bose, CEO of Jagson Airlines and former chief executive of Air Sahara.

Industry insiders said bargain fare tickets become tougher to access in the busy season as the number of seats in the cheaper price slots is reduced — an effective way to increase travel cost for passengers without announcing a fare hike.

“There was an earlier attempt by airlines to fix a base rate below which nobody would price themselves. But it never worked. There are too many players and new airlines are entering daily. Price competition will remain a given factor,” Bose added.

Besides, most airlines have ambitious plans to add aircraft and routes almost every month. This means there will be continued competitive pressure among airlines.

However, the airlines hope that a system can be worked out to reduce competition on key routes where there is over-capacity and the players are undercutting each other.

But routes like Delhi-Mumbai and Delhi-Calcutta, known for over-capacity, are also the most lucrative, and airlines at best can be expected to agree to a deal to not add more flights on the sector.

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