Air India plans to slash fares by up to 15%

The battle in the domestic skies is set to become more fierce. Air India plans to slash fares for tickets booked between five days and the last hour before departure on select routes.

The extent of the cut, said officials, could be up to 15 per cent.

Over 50 per cent tickets are sold during these five days. They fetch the highest margins as their price is two-three times the lowest fares offered on tickets booked well in advance.

For instance, the last-minute fare between Delhi and Mumbai is in the range of Rs 5,700 (Tuesday evening), as compared to Rs 3,733 for a flight that will take off on August 5.

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The move will impact other airlines, as they, too, will have to cut their highest fares.

"We aim to fill 80 per cent seats six days before the departure. If this does not happen, we are looking at offering the inventory at lower rates," said a top Air India official, who did not want to be identified.

He said Air India would not lose as it would get some money from seats that would have otherwise gone empty.

"Our planes are flying at a very low load. The aim is to get revenue from empty seats, even if we have to fill them at lower rates," he said.

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The airline has already announced a steep fare cut from May 1. Its lowest fare for the summer season is 15 per cent less than what low-cost carriers are charging.

Air India is the largest airline in the country in terms of fleet, but this does not reflect in the number of passengers carried.

It is number four in market share (15.8 per cent), behind Jet, Kingfisher and IndiGo. SpiceJet is close behind, with a 13.8 per cent share.

At present, its passenger load factor (PLF) is 68 per cent, the lowest. The industry average is above 80 per cent.

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Travel agents say this is good news for customers as well as Air India, which has so far kept off the price war.

"All that Air India lacks is proper marketing. If it does that successfully, it will be able to increase its market share," said Travel Agents Federation of India President Ajay Prakash.

Airlines say this is not a good move at a time crude oil prices are touching new highs.

"We are already hit by rising crude oil prices. Such a move will make things worse," said an executive of a Gurgaon-based low-cost carrier.

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The airline has already improved its PLF. Between April 2010 and February 2011, its PLF rose from 64.9 per cent to 66.4 per cent.

Air India has also increased the number of flights. It is now operating more flights to Seoul, London, Paris and Abu Dhabi.

It has also connected smaller cities in the country such as Gwalior and Kanpur.

Air India has accumulated losses of Rs 15,000 crore (Rs 150 billion). It lost Rs 2,226 crore (Rs 22.26 billion) in 2007-08, Rs 7,189 crore (Rs 71.89 billion) in 2008-09 and Rs 5,551 crore (Rs 55.51 billion) in 2009-10.

It got Rs 800 crore (Rs 8 billion) in 2009-10 and Rs 1,200 crore (Rs 12 billion) in 2010-11 from the government.

A proposed infusion of another Rs 1,200 crore (Rs 12 billion) in the current financial year will take its equity base to Rs 3,345 crore (Rs 33.45 billion).