AirAsia’s entry may reduce airfares to India

28 January 2010

PETALING JAYA: A decline in airfares is a given with the entry of AirAsia and AirAsia X on the major routes to India, some of which were once tightly held by the incumbent.

Previously, Indian Airlines operated certain routes but it ceased over a year ago, following which Malaysia Airlines (MAS) has been the sole carrier for some of the points.

Now things will change and it is “normal to expect a drastic drop in airfares” with competition coming from the low-cost carrier, said an analyst.

How low fares could go is not clear but as a promotional offer, AirAsia is offering a one-way fare of RM199 and analysts believe the incumbent will also drop fares very soon in response to the RM199 offering.

A check on the respective airlines’ websites revealed that a round trip from KLIA to New Delhi on August 5 to 15 is RM719 on a low-cost carrier; AirAsia X is more than 50% lower than MAS, whose online fare was RM1,592, but MAS is a full service carrier.

“The incumbent will not drop fares to RM199 but a reasonable discount can be expected as it would want to safeguard its market share. Initially, the drop will be bigger but in the longer term and prices will stabilise. However, yields will come under pressure,” an industry source said.

The RM199 offer is for a limited period only.

The cutting of airfares to combat competition is nothing new as this was seen when AirAsia X began mounting flights to Melbourne and Perth.

It has became a trend and initially the incumbent may lose some market share but over some months there would be stability and “MAS would have to adjust its pricing and marketing strategy for this market now that it has competition,” the source said.

AirAsia and its sister airline, AirAsia X, finally got the nod to fly to New Delhi, Mumbai, Bangalore, Hyderabad and Chennai beginning April.

This will set a new wave of competition which is necessary for the Indian routes and gives more choices to consumers.

The low-cost carrier will fly from Penang to Chennai on April 28 and from Kuala Lumpur to Mumbai (May 6), Chennai (May 17), Bangalore (May 20), Hyderabad (July 20) and New Delhi (Aug 4).

Unlike the other sectors, fares are very competitive on the Chennai and Hyderabad routes as the routes are currently serviced by MAS, Jet Airways and Indian Airlines.

India is not a new market for AirAsia as it has carried 237,367 passengers to the four India cities of Trichy, Kochi, Trivandrum and Kolkata, but the major routes are the busiest and airlines need to be on the main trunk routes if they want to penetrate a particular market.

“The opportunities are out there for AirAsia and AirAsia X to provide connectivity for the 1.3 billion Indian and 600 million Asean population.

“AirAsia X will also gain by carrying passengers from Australia to India and vice versa and once its opens new routes, there is opportunity for greater connectivity,” a source said.

While fares will come under pressure on the flights to India, Middle Eastern airline Emirates will add more competition to the already competitive KLIA-Melbourne route by mounting direct flights from KL to Melbourne beginning Feb 1, offering fares of RM1,880 for an all inclusive return flight.

By B.K.Sidhu

The Star