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Portals keep airfares low, carriers remain stingy

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Dec 26, 2007

(TVLW) - This season, even as airlines hike fares and go stingy on discounts, customers are gaining from the various offers given by travel portals.

For instance, Cleartrip had recently offered 50 per cent discount on all Go Air tickets for flights between midnight and noon. This offer had resulted in considerable increase of Go Air’s recently-started night flight tickets.

Others like Yatra are giving away several cashback offers through tie-ups with banks through which a customer gets substantial discount on fares.

According to experts, India is the only country where travel portals are allowed to give discounts even more than what airlines are themselves willing to offer. The advantage for airlines is that the bulk of most of these discounts is funded by the travel portals themselves or by the banks they tie-up with for the offers.

“We had tied-up with HDFC Bank for 50 per cent discount for all airline tickets across the country bought through an HDFC credit card. The discounts were funded by us, the bank and a part of it by the airlines,” said Cleartrip vice-president (marketing) Noel Swain.

Though the airline funds only part of the discounts it gets the full revenue for the ticket. For instance, even if a portal sells a Rs 5,000-ticket at Rs 4,500, the airline still gets Rs 5,000 as revenues for the ticket.

These offers are more valuable for the low-cost carriers because a major bulk of their ticket sales comes from travel portals also known as online travel agents (OTA).

For budget carriers like SpiceJet and Go Air, 25 per cent of their total sales is done by the OTAs. This chunk is more than a 100 per cent increase from last year wherein the portals accounted for only 10-12 per cent sales for both airlines.

According to industry figures, these offers increase tickets sales by more than 5 per cent for a full-service carrier and in excess of 10 per cent for a low-cost carrier.

Also, certain airlines tie up with travel portals to promote certain sectors which have not been doing well.

“After seeing lower-than-average load factors in our short-haul routes like Chennai-Bangalore and Coimbatore-Delhi we have asked one of these agencies to promote these sectors through major discounts. This way, the sales go up on the back of these discounts, even though we get total revenues from our tickets,” said an executive of a low-cost airline.

According to industry sources, Simplifly Deccan also went for such promotions for sectors like Hyderabad-Bangalore and Hyderabad-Kochi where they were getting below-average load factors. “Some of these OTAs are at a very nascent stage and these offers help them increase their market share,” said an airline executive.

Also, certain portals instead of giving away straight discounts are offering customer services that an airline does not offer. For example, even as there is a hue and cry about airlines not giving a compensation for cancelled flights, customer buying tickets from yatra are offered compensations of up to Rs 10,000 per cancelled flight.

However, there are some who think that this is a short-term strategy. “The only beneficiary from these offers are the consumers and not the airlines or travel portals,” said Keyur Joshi, chief operating officer of Makemytrip, the oldest running travel portal in the country.

“First, these discounts are for too short a period to influence break-even yields on some route. Second, most of these OTAs have started giving discounts for all airlines. Third, no OTA will be able to fund these discounts for long as there are very low margins on these discounts,” he adds.

business-standard.com

Portals keep airfares low, carriers remain stingy
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