Even as low-cost carrier SpiceJet was chastised by the Directorate General of Civil Aviation for triggering another fare cut, the company put out a spirited defence of its move in a release in the evening.
The Kalanithi Maran-owned loss-making carrier -- which cut fares sharply for the third time in the past few months -- offered flyers tickets for Rs 1 but had to suspend the offer within a few hours following a rebuke from the aviation regulator, which accused SpiceJet of resorting to "predatory pricing".
But the company maintained that its intent was to stimulate demand – rather than eliminate or reduce competition – in an industry that faces weak demand.
Also read: SpiceJet withdraws Re 1 ticket offer after DGCA reprimand
Spice pointed to other occasions, where domestic Indian carriers had resorted to a similar pricing structure, possibly referring to a Rs 1-sale that was carried out by now-defunct Air Deccan a few years back.
"[Leading Asian low-cost] airlines such as Air Asia and Tiger Airways have had numerous fare sales, including in the recent past -- including for their flights originating in India -- where the base fare was Rs 0/- (excluding fees and taxes, but including fuel surcharge)," the carrier said in the statement, adding that this kind of low-fare "market stimulation and inventory management", if done properly, was essential for the LCC business model.
SpiceJet, which posted a Rs 171 crore loss in the December quarter, has been virtually leading a fare war in the aviation sector since January by making similar offers, forcing other airlines to follow suit.
"[Such moves are] a key part of the strategy for low-cost airlines such as AirAsia, RyanAir, Southwest, EasyJet, etc globally, and benefit the wider travel industry and economy at large due to the stimulation and "economic multiplier" effect."
Apart from Spice, full-service carriers such as Jet Airways and state-run Air India have also cut ticket prices sharply in the recent past in a bid to get more passengers to fly on flights with low passenger load.
But the moves have led some analysts to wonder how such pricing strategies would be successful for an industry where, between them, Air India, Jet and Spice are seen to posting a full-year FY14 loss of Rs 7,400 crore.
In an interview with CNBC-TV18, SL Narayan, CFO of the Sun Group which owns the carrier, said that while Spice had withdrawn the offer after "accepting the DGCA's position", those had already booked tickets at Rs 1 would get the same.
SpiceJet stock price
On April 02, 2014, at 11:12 hrs SpiceJet was quoting at Rs 15.43, up Rs 0.94, or 6.49 percent. The 52-week high of the share was Rs 43.75 and the 52-week low was Rs 12.50.
The latest book value of the company is Rs -3.50 per share. At current value, the price-to-book value of the company was -4.41.
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