The intangible AirAsia effect

So AirAsia wants to cut fares 20 to 25 per cent and add 11 aircraft every year, and Aditya Ghosh of IndiGo, the biggest domestic competitor, says he’s not going to lose any sleep over the Malaysian competitor’s entry. But what about customers? Conventional market logic suggests that they should relish more competition – after all, it’s supposed to be good for the customer, right? True, but the impending entry of AirAsia raises a frisson of doubt on that point – and maybe a little regret.

Fares are a critical factor in the service industry and, increasingly in the Indian aviation business, the cheaper the better. More than half the 58-odd million passengers in the domestic airline market chose low-cost airlines in calendar 2012, according to data from the Directorate General of Civil Aviation. Given that the economy has slowed since then and spending curtailed, the dominance of the low-cost airlines can be reliably expected to continue. Signs of this were already in evidence in the January-to-July numbers. Low-cost airlines had raised their share to 62.3 per cent of the roughly 35 million domestic passengers who travelled in this period.

Full report here Business Standard 


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