Aviation industry in India battles with high aviation fuel prices and low fares

Travel Distribution India Special

The aviation industry in India has witnessed consolidation this year after a spate of launches, especially in the low-cost sector in the last few years.

The overall order book for aircraft might look strong, the rate of domestic traffic growth remains solid but equally strong have been the growing concerns with the mounting losses posted by the airlines.

Assessing the consolidation which has taken place this year, Sanjay Kumar, CCO,  IndiGo Airlines says, "While there are many things going on in the market, we think it is fair to say that the primary drivers of airline losses in recent months have been high aviation fuel prices and low fares. Obviously the recent consolidations have had no impact on fuel prices, and it is still far too early to tell if there will be any significant difference in fares either."

The losses are a result of multiple players competing with each other in a market with relatively little historical data for comparison all attempting to stimulate new demographic and geographic market segments. Currently supply exceeds demand on several key routes with several   operators and yet no one with high load factors.

"The sector took a beating not just due to fares, although certainly they are and have been low, but also due to high aviation fuel prices.  And as for fares, we expect some modest firming up in fares but it is too early to tell if there will be any significant differences going forward," Kumar told EyeforTravel.com's Ritesh Gupta in an interview. Here is what Kumar had to say about his airline and distribution.

 

Talking of  IndiGo Airlines, what is the strength of the airline when it comes to pricing strategy and yield management?

Our pricing strategy is straightforward - we are always affordable.  We have very few sales - because we don't need to - and we avoid big giveaways and gimmicks.  As for yield management, we simply implement the same basic approach used worldwide - as the airplane fills up, the remaining seats get more expensive.

 

Airlines have been working on online check-in and the deployment of API which allows agents and corporates the ability to directly connect with reservations platform by-passing costly GDS' etc. What's your take on this?

IndiGo is not a member of any GDS and all of our bookings are done on our reservations platform.

Individuals, travel agents and online travel agencies access our site directly via Internet or API.  We not only offer online check-in, but also the ability to check flight status both online and on mobile devices equipped with GPRS. 

Because of significant advances in technology and the huge increase in convenient, portable, connected devices in the hands of consumers, the worldwide trend for several years has been to move toward direct connection and we think that is likely to continue.

LCCs or budget carriers are increasingly relying on ancillary revenues – related to ala carte services and charges related to credit card/ debit cards. What role do you think would this form of revenue is going to play in the near future?

We think airlines will continue to seek to generate more revenues through activities such as onboard sales, hotel and car rentals affiliations, onboard advertising and promotions, etc.   

Going forward, do you think there be a marked shift towards direct online bookings for LCCs and traditional carriers? How will this impact the revenues of online and offline intermediaries?

Clearly LCC's have a preference for direct bookings, but nonetheless they sell a significant amount of business through intermediaries. 

On the one hand, it is likely that LCC's will seek to push direct business over indirect business.  But on the other hand, the coming of LCC's to India has grown overall air travel by more than 25% per year for several years, and all projections indicate growth will continue along this same path for some time to come.  With that kind of market growth, the revenues of online and offline intermediaries have grown, and will continue to grow, even despite any modest shifts toward direct online bookings.

Hotels contribute less than 10 percent of online travel revenues, estimated to be US$700 million or so by last year. Considering your database and the potential for hotels to grow, are you looking at hotels for major alliances when it comes to dynamic packages/ revenue alliances?

We will start developing this revenue stream  as we have now grown to a reasonable size and network in the domestic markets. We are evaluating various opportunities that exist in the market place.