Mumbai: National carrier Air India's move to lower fares by up to 20% on certain routes since January this year to prop up its falling market share is making other airlines see red as they face the prospect of taking a hit on their profits.
Airlines are worried that the national carrier's dash for market share has come at a time when oil prices have risen to record highs due to the Libyan crisis, raising their operational costs as much as 50% in some cases.
" Air India is offering all their seats at prices that are lying at the bottom of the yield bucket. They are reducing fares by as much as.`1,000 and competing with us by dropping fares, especially on the Delhi-Mumbai routes," said the CEO of a low-cost airline who did not wish to be identified. "A drop of .`100 in yield will bleed airlines by .`3 crore."
Despite having the largest fleet, Air India was recently overtaken by low-cost airline IndiGo in terms of market share. The national carrier has a market share of 15%. It has long lagged behind Jet and Kingfisher , the two large sector airlines. Air India's move has had some impact in January-March 2011 quarter, say analysts.
"Air India has dropped fares in the last quarter by 20%-30%. This forced other airlines to follow suit. With fuel costs up by more than 40%, this drop in fares by Air India has become a game changer for the fourth quarter of the last financial year," said Kapil Kaul , CEO, (Indian sub-continent & Middle East), CAPA.
Air India defends the strategy by saying that its market share has gone up and it has become competitive.
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