The economics of Spicejet’s fare sale and justifying the regulator’s action

I got quite some amount of pushback on the SpiceJet sale that happened last weekend and I thought I’d pen down my thoughts here. I think there were 2 sorts of concerns, firstly about people not being able to find the fare and secondly about the concept of the sale as a whole, with a bleeding market as a whole.

I first heard about the sale on Friday morning 0800 IST approximately, and immediately got down to work on rearranging some of my existing travel which would have anyways happened for me or my family. For instance, I had a ticket booked for my brother, who was going to be on a DEL-JAI-BOM flight during the sale period and was booked for about Rs. 5,000. I rescheduled to put him on a slightly later flight, which would have done a DEL-BOM nonstop, and paid the change fee of Rs. 1,000. I figured, even with the change fee, I was going to get Rs. 2,000 in refund without much change in plans so why not.

Next, I had plans to make a train journey to Delhi. I haven’t been on a train for a while and I was booked to travel on the Rajdhani Express in Tier II. However, the recent hikes in train ticket prices did make it an expensive proposition as compared to this sale price which was in my face. I was immediately looking for a reason to move the train to plane tickets, and it made sense because I did not have to leave office midday to get to the train at 1600, rather I could wake up next morning and still be at my appointment in time during the day.

Those were some of the things I did that morning, the key in these sales is to act early. The problem here was not going to be that inventory was going to dry out on day one, because I was seeing Rs. 2013 fares on almost any and every flight I was checking (they started with 1 million tickets for sale). So claims that the sale was a marketing gimmick were flawed, as I managed to book all the trips I wanted to book during the sale. It was all about doing your due-diligence before booking and not jumping on the first flight you got.

The problem was the servers. As the news spread during the day, people were not being able to get access to the servers and travel portals had cut off access to keep their sanity. IT infrastructure does have its limitations, and if the same infrastructure built to serve 50,000 tickets a day gets used to dish out 200,000 tickets, it is a tough job. However, I don’t expect SpiceJet to scale up because IT is not their core infrastructure and they are a low fare airline, so they don’t need to be investing in IT but in planes, slots at airports and infrastructure. Get in early on these sales is the way to go. Or else keep awake during the night, when hopefully, the others have given up!

Predictably, this was the sight sometime during the day …

a close-up of a website

The second bit was about the sale concept itself and some things the regulator did. I find that SpiceJet has an marketing team that works a lot with promotions, and hence they do come up with one every few months. So, the sale itself did not surprise me but the price did. Look, I am someone who has laid their hands on the elusive Re 1 ticket when Air Deccan used to sell them, and these were about the same prices if you looked at it inflation-linked.

SpiceJet did this, perhaps, because February – April is a lean travel season due to various reasons, largely exams and all that. So, the planes were going to fly empty anyways, and rather than fly them empty, they could have filled up seats with this sale, eked out a marginal revenue rather than have the plane go without passengers. The price was at 60-70% discount, this was a trigger for those who were not thinking of travelling but were induced into it with the fare sale. That the railway guys had just introduced a fare hike out of the blue a couple of days ahead was another reason, because travelling by train was going to be 5-7% expensive now. SpiceJet was hoping the passengers would like to take a flight, and some like me loved them for it. They were successful, and in the process they got an upfront amount.The element of surprise did work in their favour.

However, later that day Indigo and GoAir started to follow the lead of Spicejet. I even heard Jet Airways got into the game with JetKonnect for a brief while. As per media reports, the airlines got a call from the DGCA (airline regulator) reminding them that this game was a race to the bottom. Customers were going to love them for it, but the airticket pricing in India, which finally had come to a sensible level, was going to go back into the abyss which Air India and Kingfisher had created at a point of time. In a way, they were given the message to back off. SpiceJet being the only one with a campaign built around it, expressed its inability to do so, and continued with what it started. The other players quietly went back to their original pricing in a few hours.

Newspapers say ‘experts’ have slammed the DGCA for this intervention, but I sort of see sense in what they were doing here. I agree it is a free market and companies need to be given a free hand in deciding what they would do in terms of pricing.

But copy cat promotions are the race to the bottom and if the airlines feel so generous in eroding capital they should reduce their fare levels for good rather than doing one-off promos. This was SpiceJet’s idea and they got the benefit of it. If everyone else would have moved in, I would have been a happy person, but sooner than later we would have heard of more airlines in trouble. Heck, even SpiceJet can’t make this as everyday pricing, so everyone else should have just kept out of fray in the first place. I have to give it to the DGCA for having done what it did.

What do you think? Did you manage to get any tickets? Did the regulators do the right thing or wrong?

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About Ajay

Ajay Awtaney is the Founder and Editor of Live From A Lounge (LFAL), a pioneering digital platform renowned for publishing news and views about aviation, hotels, passenger experience, loyalty programs, travel trends and frequent travel tips for the Global Indian. He is considered the Indian authority on business travel, luxury travel, frequent flyer miles, loyalty credit cards and travel for Indians around the globe. Ajay is a frequent contributor and commentator on the media as well, including ET Now, BBC, CNBC TV18, NDTV, Conde Nast Traveller and many other outlets.

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  1. Thanks AJ – Since the day I got my premium card I have been following your blog and it has been my first source for anything travel related.

    As per your “tip off “and a couple of other facebook updates I got around to it since Friday 12 pm but servers were constantly down. Then finally Sat around 2 Am they gave in and I was able to book a Del-Mum-Delhi , Another Delhi-Pune-Delhi and a Delhi-Bagdogra-Delhi in feb ,mar ,apr respectively. ( And they say it is a lean period ? )

    Next whole day server was again all down so booked another Delhi -Guwahati on Sun night.

    The only question is how do you become the first to know ? Still wondering how you heard it first ? 🙂

  2. hey,

    didnt get tickets, as no travel was planned but annoyingly enough something came up two days after the sale. So certainly missed out.

    i am ambivalent about govt intervention here, while i am a fan of less regulation, I think the aviation industry right now needs caution, short term gains are senseless.

    perhaps the DGCA prevented airlines from mindlessly launching a fare ware which would have only benefited Spice jet.

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