Low cost airlines win back market share

After steadily loosing market-share, low cost carriers (LCCs) like IndiGo, SpiceJet, and Kingfisher Red (former Air Deccan), have clawed back from 41% during the July-September 2008 quarter, to 46.4% in October.

Indian domestic passenger numbers and passenger numbers growth
January 2007 to October 2008

Source: Centre for Asia Pacific Aviation and Ministry of Civil Aviation

While passenger number rose in October, in the slowing economy, passengers are tightening their belts and looking for lower cost travel options. Full service carriers like Air India, Kingfisher, and Jet, are reluctant to pass on savings like the reduction in fuel prices and reduction in congestion over busy airports, over the last few months. LCCs have removed the congestion surcharge, and have introduced lower fares on advance bookings.

The full service carriers have indirectly increased their incomes by withdrawing commissions paid to travel agents, and have further penalised paasengers by imposing a "transaction fee" of Rs. 350 to 500 to cover for the travel agents' commission.

While full service carriers like Jet typically charge Rs. 7,400 for a one-way ticket between Mumbai and Delhi, LCCs like SpiceJet typically charges Rs. 5,125. The gap between LCCs and full service carriers has grown back to Rs. 1,500 - Rs. 2,000 from a paltry Rs. 400 earlier, which had caused massive passenger defections from the LCCs to the full service carriers.

LCCs have also taken the battle up a notch further, now allowing corporate customers to reschedule and cancel tickets with little or no fees, in a bid to increase their penetration of the lucrative corporate traveller business.

IndiGo and SpiceJet led the LCC charge carrying about 1.2 million passengers each, while Kingfisher Red carried 0.74 million.