Air fare war may continue on low crude oil prices

The fare war in the Indian aviation sector has well and truly begun. Whether it is due to the lean period or the sharp drop in aviation fuel prices, airlines across the board are slugging out to offer lowest fares. Even full-service carriers such as Jet Airways and Air India, and even the newly launched Vistara, are luring customers with fares comparable to low-cost carriers or LCCs.

Take Jet Airways, for instance. The Naresh Goyal-promoted airline is offering tickets for Rs 4,424 for a Delhi-Mumbai flight one month from today. The fares are available at nine different time slots across the entire day. State carrier Air India's lowest fare for the same day is Rs 4,956 while Vistara's is Rs 5,481 per ticket.

Economy fares offered by LCCs such as GoAir and SpiceJet are in the same range. GoAir's economy fare varies from Rs 3,339 to Rs 6,084 on Febraury 23 for Delhi to Mumbai, and SpiceJet's economy fares are Rs 3,343 and Rs 5,559 on that day. LCC market leader IndiGo's range varies from Rs 3,051 to Rs 5,428 per ticket.

Interestingly, Vistara which started with Rs 7,502-the cheapest fare for economy class-for Delhi to Mumbai for its opening day (January 9) has slashed lowest fare to Rs 5,481 for a booking on January 24.

The fare war is expected to continue as airlines are benefitting from the sharp drop in fuel prices. Aviation turbine fuel (ATF) has fallen by 32 per cent since October 2013 when it reached an all-time high of Rs 77,089.42 per kilolitre. It is estimated that ATF prices account for 45-50 per cent of the airline's total cost.

It all started with Air India announcing its 'Spring Sale 2015' scheme on January 12 under which the airline slashed fares on multiple domestic routes by around 50 per cent for seven days. A day later, Jet Airways dropped fares by up to 50 per cent for six days, which was followed by GoAir offering huge discounts on fares, as low as Rs 1,468.

Airlines argue that the fare cuts are targeted to generate demand during the off season. Typically, the passenger traffic in the first quarter of a calendar year remains low as compared to other quarters.

In 2014, for example, the combined domestic passenger traffic for the first three months - January, February and March - stood at 15.38 million. Comparatively, traffic was 17.03 million in the second quarter, 16.73 million in the third and 18.23 million in the fourth quarter.

As the economy starts to look up and fuel prices remain low, the aviation sector is expected to perform better. And with more price wars.