Indian Carriers Prepare Unbundling Strategies

By Jay Menon
Source: AWIN First
May 01, 2013

Airlines in India, including flag carrier Air India, are eager to begin charging extra fees on a range of passenger services following regulators’ move to permit the country’s struggling airlines to “unbundle” charges like most carriers in other parts of the world.

The Ministry of Civil Aviation will now let airlines charge separate fees for things like seat selection, checked baggage, use of airport lounges and transporting “valuable” baggage such as sports equipment and musical instruments.

“We will start charging passengers extra for the premium services the moment we get an official notification and confirmation from the DGCA (Directorate General of Civil Aviation),” an Air India spokesman tells Aviation Week.

Regulators are following the recommendations of Nathan Economic Consultants, which advised the ministry that the a la carte model has “become a necessary aspect of exercising more control over operational costs and running a successful airline.”

Persistent operating losses, strikes, grounded airplanes, inadequate air and surface infrastructure, high-cost fuel and multiple taxation issues all have been the bane of the country’s aviation sector, and it’s hoped that permitting unbundling will help ease the financial strain. Indian carriers lost an estimated 75 billion rupees ($1.4 billion) in the financial year ending March 31, caught by increased expenses and declining passenger traffic.

As has happened elsewhere, it’s expected that the rule change will result in base fares declining somewhat, while total fees charged rise. Noting that aviation regulator DGCA will have to approve each airline’s new fees, a ministry official explains that the goal is to let passengers benefit “from lower base fares and to customize the product to better suit their requirements and budget while allowing airlines to develop more sustainable operations in an environment of wafer-thin margins.”

Amber Dubey, a partner at auditor KPMG, observes “The base fare will definitely come down. But by how much? It is something which only time will tell because almost 80%-85% of the cost base is anyway fixed.”

Aditya Ghosh, president and executive director of low-cost carrier Indigo, calls the regulatory move “a significant step in aligning India with global practices in the airline industry,” adding that Indigo, too, plans to adopt a new pricing structure as soon as it is feasible. “In this manner, the price-sensitive customer can choose the services that he or she would like to avail and pay for only those rather than being burdened with a high cost,” he says.

Another low-cost carrier, SpiceJet, plans to gradually decrease the limit of free checked-in baggage on its flights. “We currently allow 20 kilos of free baggage but will bring it down to 15 kilos,” a Spicejet executive says, adding, “We have been demanding this for the last few years.”

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