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Business

Indian airlines charge for meals, baggage to up profits

Indian airlines focus on raising revenues from offering services such as prepaid upgrades and meals onboard.

NEW DELHI -- Indian airlines are shifting their focus to non-ticketing income, such as charging for meals and excess baggage, to widen profit margins in a highly competitive industry. 

They are now pushing add-ons such as food and drink and paid seat selection. Airlines have been keen to boost such "ancillary revenue" to offset cheaper tickets as more operators join the industry. Travel executives said that a New Delhi-Chennai flight can now cost as low as 4,100 rupees ($61), or half the price of three years ago.

Vistara, a joint venture airline between India's Tata Sons and Singapore Airlines, launched a range of ancillary services for its passengers in August. Services include prepaid upgrades to business and premium class and for excess baggage at a discounted rate. According to Sanjiv Kapoor, chief strategy and commercial officer of Vistara, these are "designed to offer customers more choice at attractive rates, and can be purchased with the click of a button."

Jet Airways, too, introduced "priority advantage" for all its economy class passengers in August. For 400 rupees per sector, passengers can have their baggage tagged, checked in and delivered as priority instead of waiting in line at airport desks. The second largest airline in India also plans to provide in-flight Wi-Fi soon, a service that no other domestic Indian airline offers now.

Even the largest player with a market share of 38% in India's domestic sector, IndiGo, charges a fee of between 250 and 600 rupees for a premium seat with extra legroom or is near the front of the aircraft.

The Directorate General of Civil Aviation, India's regulator, relaxed rules and allowed airlines to charge for "unbundled services" in early 2015, including for preferential seating, the use of airport lounges and to carry musical and sports equipment.

Such services will give airlines a revenues boost. Although airlines reported that passengers flying domestically grew in double digits for 23 continuous months until July, their financial performance has been wanting.

IndiGo announced its profit from operations before other income fell 21% in the quarter ended in June from a year ago, while its revenue grew 9% over the same period. Similarly, Jet Airways said that its profit fell 27% while its revenue dropped 3% in the April-June period from a year ago, owing to heavy discounts and continuous competitive pricing. Stabilizing fuel prices also reduced airlines' ability to expand profit margins.

Ancillary services now make 10-15% of total revenue for Jet Airways, according to a senior officer of the company. It was 12.4% for IndiGo in the year ended March, one percentage point higher than in the previous year.

But analysts said that it was still unclear if ancillary services will provide airlines with sustainable growth.

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