Mumbai : Air India has decided to slash fares in an attempt to raise its market share, raising the possibility of a full blown price war in the debt-laden domestic aviation industry. According to a report, the national carrier will reduce fares on domestic routes by up to 23 per cent effective September 1, 2010.

The cut in fares, the first since December 2008, will come in the backdrop of the carrier registering Rs 300 crore revenue increases from ticket sales during April-July over the year-ago period. National Aviation Company of India (NACIL), the company that owns Air India, is the third largest player in the country with a 17.3 per cent share of passenger traffic. Jet Airways, with a 26 per cent share is the leader in the domestic market, followed by Kingfisher Airlines with 20 per cent. Other airlines criticised Air India's move and said they will be forced to follow suit and cut fares as well.

According to aviation sector experts, September is a lean month for the airline industry and with India being a price sensitive market; lower fares can result in higher traffic and garner more market shares. But if, as anticipated, other airlines cut prices it will nullify advantage.

"Lower fares can substantially help Air India achieve more market share, but only if planned carefully. In the long run, yield (Rupees per passenger-km) has to be commensurate with cost of operations. Discounts, especially in the upcoming winter season, may invite retaliatory reaction from competition, nullifying the price advantage and pull yields further down," said Amber Dubey, Director (Aerospace and Defence), KPMG.

Domestic passenger traffic of scheduled Indian airlines increased for the seventh month in July 2010 by 14 per cent to 41.61 lakh compared to the same month in 2009. Jet Airways registered Rs 3.5 crore of profit in Quarter One of the current fiscal and Kingfisher Airline's losses came down to Rs 187 crore from Rs 237 crore.