India - Budget carriers set to cut fares by 15 percent

Mithun Roy

MUMBAI: Air travellers finally have some reason to cheer. The country’s three low-cost airlines — SpiceJet, IndiGo and GoAir — are likely to slash fares between 10% an d 15% from November 15.

This follows the oil companies’ decision to cut aviation turbine fuel (ATF) prices, coupled with the government’s move to withdraw the 5% Customs duty on jet fuel. The airlines have taken an in-principle decision to slash fares to pass on the benefit of the fall in ATF prices to customers. An announcement is expected in a couple of days.

Meanwhile in a related development, state-owned oil firms once again cut jet fuel prices by up to Rs 2,100 per kilolitre on Monday night. Another cut in ATF prices is likely to come on November 15. Thus, there has been a 20% reduction in jet fuel prices in three days.

Interestingly, these three airlines control one-fourth of the domestic market. Sources said these airlines plan to announce the decision on the same day to get maximum mileage against full-fledged carriers — the Jet-Kingfisher alliance and Air India — which have no plans to cut fares.

There are reports that the ATF prices would be further slashed within the next few days, in line with the drop in crude oil prices. A top SpiceJet source said: “There could be a fare cut in some sectors, but nothing has been finalised as yet. SpiceJet will take the final call on Wednesday.” He declined to give details.

Post the proposed cut, a Mumbai-Delhi ticket by SpiceJet, IndiGo and GoAir would cost around Rs 3,800, including taxes, during non-peak hours as compared to Rs 4,475 at present. In comparison, Jet, Kingfisher and Air India’s fares in the sector are around Rs 7,237, Rs 5,838 and Rs 6,594, respectively.

IndiGo president Aditya Ghosh said: “We are monitoring the developments closely. It's too early to take pricing decisions. The fuel marketing companies are yet to inform us of the timing and quantum of reduction in prices due to the Customs duty cut.”

A GoAir spokesperson said: “It is a trifle early for the airline to decide on any reduction, given the monetary exchange rate impact being experienced and the economic downturn.”

Currently, fuel constitutes 50% of the overall costs of airlines. The average price of ATF had increased 60% between April and September, before Friday's decisions to cut prices and withdraw Customs duty.

Analysts said ATF prices would now come down drastically and would help the loss-making airlines reduce their operating costs. Besides, airline executives expect that a reduction in airfares would help increase the load factor, which has fallen from 75% a year ago to around 45% now.