Why Not Low Spot Fares? Government Asks Carriers

Two notable incidents in the very recent past, related to the Indian aviation sector, are worth noting. One incident is of Minister of State Mr. Venugopal finding that the Air India flight flew with 23 vacant seats even while there were passengers on waiting-list and he himself being denied ticket, resulting in the suspension of two customer service representatives and holding an inquiry into the mistake to determine whether this was repeated for other flights as well. The second incident is of the government asking the carriers why they did not consider offering the cheap flights at the end, to fill their vacant seats, especially when these carriers resort to charging exorbitant fares.

Both the incidents are pointers to one problem with the carriers, that is, of low seat factor being reported by the airlines consistently over the years and their continued accumulation of losses despite charging high fares during the peak seasons. While the government query is genuine and in the larger interest of passengers, the airlines might have a point or two in favor of their arguments as well. If the airlines make it predictable for the passengers to get the lowest air fare at the last moment of flight booking, the people would find it more opportune to book at the fag-end. This is likely to add a lot of pressure on last minute flight booking since the people would be willing to wait for the best deals at the fag-end.

This move will also affect the ability of the airlines to do effective yield management in order to generate more revenues based on the demand and the supply factors. If it will not find enough people who are willing to buy tickets in advance, it might mean that the inventory of seats will not fill initially and offering all the unsold seats at the last minute would not necessarily means giving these away at the lowest air fare.

On the other hand, the government is faced with the prospects of huge losses by the carriers which are increasing by the year, adding to its worries. There has been an average seat factor of 70-75 for the domestic carriers, which means that almost 25-30 seats go unsold in each flight resulting is huge loss of revenue to the extent of one-third of earned revenue.

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