Air India's Rajdhani-like fares will fuel passenger boom, but may hurt yields

New Delhi: Air India’s decision to offer cheaper last minute fares on select routes could be both a boon and a curse for the airline. Some aviation industry experts have said that this move will kill the airline’s already dodgy revenue management, and at best may help the national carrier fill every fourth seat which otherwise goes vacant on its domestic flights. [caption id=“attachment_2783152” align=“alignleft” width=“385”]  PTI[/caption] So the boon may be limited to getting more bums on seats. On the flip side, this move could change passenger booking behaviour as well. If one knows that tickets are sure to be available at significant discounts to the average air fare four hours before every flight, why would one want to book a ticket on normal fares at all? An Air India official said this scheme has been launched to check exorbitant last minute fares, a practice followed by airlines world over. Of course, it seems to be following orders of its master, the ministry of civil aviation, which has often spoken of regulating air fares. Former MoS Civil Aviation Mahesh Sharma had repeatedly warned private airlines of using Air India to lower fares, by ensuring that the national carrier lowers them first. Is the latest scheme a throwback on Sharma’s views? The discounted fare scheme became operational from Sunday and is ostensibly aimed at the “thousands” of passengers who are unable to get confirmed tickets on India’s Railway network due to non-availability of seats daily. Under the scheme, passengers can book the tickets 4 hours prior to the flight departure at a fare which is equivalent to that of Rajdhani Express (1A). Passengers can avail an all-inclusive economy class one-way fare on select domestic routes till September 30 2016. Initially the scheme was valid for Delhi-Mumbai-Delhi, Delhi-Kolkata-Delhi, Delhi-Bengaluru-Delhi and Delhi-Chennai-Delhi. Now, the airline has extended the list of city pairs where the scheme is applicable. The list now includes Delhi-Ranchi at Rs 2,770, Delhi-Ahmedabad at Rs 2,270, Delhi-Hyderabad at Rs 3,275, Delhi-Bhubaneshwar Rs 3,475, Delhi-Goa at Rs 3,665, Delhi-Patna at Rs 2,315 and Delhi-Raipur at Rs 2,240. It is not clear if the reduced last-minute fares already announced for each route are indicative or fixed fares and whether they will rise as seats get filled. But if they have been fixed, the airline may find it difficult to generate any significant additional revenue from this move. Says Jitender Bhargava, former executive director and author of the book ‘Descent of Air India’, “This move will dilute yields (revenue per passenger). Anyway, this cannot compensate for lack of marketing efforts by Air India.” An executive at a low-cost airline pointed out that for Air India, this could be a clear way of increasing aircraft loads and could save on marketing/promotional expenses which the airline would have otherwise incurred. The move comes at a time when the traditional peak season for air travel is over and aircraft occupancy across most airlines tends to fall. Also, eyeing rail passengers is nothing new for airlines. Last year, LCC Spicejet entered into a tieup with the Railways which enabled a train traveler whose ticket is wait-listed to cancel the train ticket and instead get on to a flight by paying some incremental fee. A similar tieup was put in place by GoAir. But there were some riders in this scheme: it only applied to tickets booked at least three days in advance of the journey, these train tickets could only be cancelled on a specified website and flight tickets were to be available only for the day of the train journey or a day prior to it. There were no fixed sectors nor fixed air fares under the scheme. The incremental payment for a flight (over and above the train fare) depended on the sector and prevailing prices. It is not clear if the scheme even got started with either airline. The Air India official quoted above said there is no such restriction on its scheme and anyone (whether she holds a Rajdhani first class ticket or not) can avail of these discounts. Instead of making it an all-out discount, perhaps Air India would have done well to offer these rates on select flights. For example, flights which are late and typically see low occupancy or flights to select destinations etc. Making it an all-out scheme could well limit its efficacy.