India's airlines have slashed their fares by 20-25%, taking them to their lowest level in four years and setting the scene for a long and bitter war. Besides discounts, a wide range of gifts are on offer, from free holidays to complimentary stays in hotels and free travel for spouses.

The first salvo was fired by Sahara Airlines, which cut fares by 20%, to Rs4,111 ($95), from Delhi to Mumbai. Jet Airways dropped its fares to match Sahara. The real surprise came when Indian Airlines - which controls about 60% of the domestic market against Jet's 31% and Sahara's 9% - slashed its equivalent fare by 25%, to Rs3,800.

The Delhi-Mumbai route has been a money-spinner for all concerned and accounts for one-quarter of total domestic traffic. The three airlines operate 21 daily flights between the two cities. But a prolonged economic slump has depressed air traffic by 1 million passengers in a single year, prompting the offer of discounts and gifts to stimulate demand. "With the lean season and general stagnation in air traffic growth, a discounted fare would be a prudent move," says an Indian Airlines representative.

Airlines claim that the discounts have resulted in high loads. Indian Airlines and Jet were reporting load factors of 78% and 80%, respectively, by mid-July, against around 60% a month earlier.

The reduction in economy class fares has hit business class as the huge difference affects class choices. The fare wars show no sign of abating and analysts fear that the airlines will lose money. Jet and Sahara are likely to feel the squeeze more than Indian Airlines. An Indian Airlines executive says that Jet and Sahara are smaller carriers and cannot sustain the discounts for long.

Source: Airline Business