India's Kingfisher Airlines has defended its plans to pull out of the low-cost market and concentrate on its premium business, saying that the latter will generate higher yields and build on the company's brand.
The operating costs of both budget and full-service Indian carriers, in terms of fuel, airport charges, engineering and maintenance and crew costs are similar, said Kingfisher CEO Sanjay Aggarwal in a statement.
While full-service carriers incur additional costs on global distribution, in-flight catering, ground amenities and a frequent flyer programme, these can be recovered through higher yields, he added.
Given that dedicated low-cost carriers such as IndiGo, SpiceJet and Go Air have placed orders for new aircraft over the last few months, there is a strong likelihood of overcapacity and a price war in the segment, he added. Jet Airways and Air India also have low-cost subsidiaries in the Indian market.
While Kingfisher faces competition from both Jet and Air India in the full-service segment, that is not as intense as in the low-cost market, said Aggarwal.
In the international market segment, Kingfisher's integration into the Oneworld alliance would allow it to grow its premium market as well, he added.
"With continuing economic growth, business related travel is increasing significantly. Businessmen and executives prefer to fly with full service carriers because of [the] ease of buying tickets, frequent flyer programme and convenience offered. They are willing to pay extra and this segment is not as price sensitive as the classic low-cost/low-fare segment where there is a lot of discretionary travel involved," said Aggarwal.
Kingfisher operates Airbus aircraft with two cabin configurations - full-service dual class and no-frills single class. Not offering its business class or full-service economy class product on all its routes means that it is losing out on the premium traffic on many routes, said Aggarwal.
As part of the recently announced changes, Kingfisher plans to reconfigure all of its Airbus aircraft over the next four months to have a reduced premium business class cabin and an increased number of full-service economy class seats. This includes aircraft with a single-cabin configuration.
Its ATR aircraft, which were the mainstay of the low-cost business, will also be reconfigured for the premium business.
These moves will raise Kingfisher's capacity by around 10%, Aggarwal said.
"The reconfigured aircraft will have the seat equivalency of a low-fare carrier, but an opportunity to generate much higher revenue as demonstrated by current yields. Kingfisher will achieve incremental business class revenue as a result of wider and uniform availability and the airline will also generate incremental revenue through its increased full-service economy class capacity," said Aggarwal.
Source: Air Transport Intelligence news
