The Price War
Air Fare is the most exciting aspect of Aviation (or may be whole of Travel) industry. Deregulation of Industry (in 1978 in US) and entry LCCs the market with their competitive pricing, forced legacy carriers to question their existing COST PLUS pricing strategies and come up with Revenue / Yield optimization systems, which started and intensified the price war by introducing concepts like demand based pricing which let airlines charge more from inelastic segments while having differential pricing for elastic segments and capturing the excess demand…
War is still on… and the air fare is no less than stock price – as volatile and you never get to buy the stock at that “Fundamentally Right” price!!
Let’s talk about what’s happening in India…
No, I am not going to get deeper into these pricing concepts (will park it for some other day…), what made me write this post is the recent happenings in Indian aviation industry, which is in news for reasons no other than Volatile, Irrational nature of Air Fares and Airlines charging exorbitant prices, if you haven’t read these so far it’s worth reading some of these articles which explain in detail the current state of
- Demand and supply equation and hyper volatility in Air Fare
- With real air fare data of this one explains a bit about how Booking Velocity determines how much a flier will pay…
- And how Carriers jack up prices in situations which can very well be compared to blackmailing of fliers in need…
Flash back to August 2010
These news items last week reminded me of a news piece which I read in August 2010 when Air India announced reduction in fares…
…The national carrier will reduce fares on 48 domestic routes by 3-23% effective September 1. “This is a purely commercial decision, which aims at increasing the airline’s market share,” a senior ministry official told ET… (Link)
Now, I have no idea if this reduction happened and what those 48 routes in question were (May be Air India can throw some light on that!!), what did happen was an exorbitant hike in Fares during Festive season in November 2010…
…While airfares across the domestic network are 15-25% higher this peak travel season, the Delhi-Mumbai sector has seen a 200-300% jump thanks to a number of factors plaguing the two airports that together account for almost 70% of all domestic flights… (Link)
Enter Regulators…
If these hikes were not enough Airlines were again proposing massive hike in fares…
… Domestic airlines have proposed a massive hike in air fares ignoring government’s calls not to resort to exorbitant fares after they were hauled up for abrupt rise in ticket costs even during non-peak season… (Link)
And thus intervened the biggies like Aviation Ministry, Directorate General of Civil Aviation (DGCA), Competition Commission of India (CCI) talking of Cartel formation and the need for transparency in air fares and asking airlines to follow practices like putting a price band to airfares every month and publish them in newspapers or their websites.
What Next?
This is just the beginning of the tussle between airlines and department and hopefully we will see some serious action in coming weeks. Would also be interested to know
Is there any answer or a way to track the authenticity of fare reduction announcements, like the one highlighted above where Air India announced for cut in September?
How Indian consumer is going to react to this whole episode, it’s really sad to see how quiet they have been so far on this whole episode…
How ministry and DGCA will react and what steps will they take… will they take a step forward and provide this data of air fares on their websites?
This is also just a beginning for new topic on Factory …I will be closely watching this event and sharing more posts on this interesting topic of airline pricing… keep reading…
