Low Cost airlines in India: The past and the future

The history of civil aviation in India started with the first commercial flight on Feb 18,1911 covering a distance of 11 km between Allahabad and Naini by a French pilot Monseigneur Piguet. The next step came when the first domestic route was opened between Karachi and Delhi in December 1912. The Indian aviation industry has certainly come a long way since then.

Times change, and so do the market sentiments. The last ten days have yet again proved that nothing is impossible, else who would have predicted the stalwart I-Banks to go bust, that also in droves. Was recently reading an article echoing the sentiments during early 2006. It was the time, when the LCC craze was catching up. With Deccan launched in Sep 2003, Spicejet in May 2005 and Go Air in Nov 2005, there were others waiting to grab a pie of the ever expanding market (as it seemed at that point of time). After all, LCCs were tipped to capture 50% market share by 2010. There were talks by LCCs like “Every time we fly, the economy looks up”. Finding an investor was never a problem. In words of Kapil Kaul, CEO( Indian sub continent and Middle-East), Centre for Asia-Pacific Aviation, “There is a mad rush of money chasing India‘s aviation sector.”

 Also then, A meagre 6.67 percent of Indian middle class used to travel by air compared to 35 percent in China. So, with India shining, did it not mean a terrific opportunity? In the words of Ray Webster, the former CEO of easyJet,  “In Europe, the number (of passengers) is far lower, journeys are short, and traveling by train is a nice experience. Yet, the low-cost airline model has worked very well. I can’t begin to imagine the size of the market in India.”. He obviously had a point there and found many takers for the same. But, there was a voice of dissent too, some one whom people did not pay much heed to, and some who is soon going to start international operations of his airlines.Yes, it was none other than Vijay Mallaya who said“I don’t believe that there is a space for low-cost carriers in India. Where is the low-cost opportunity? You are forced to fly under dispersal guidelines on unprofitable routes, you pay the highest air turbine fuel (ATF) prices in the world, including humongous sales tax levied by the states, pay a lot of landing and parking fees, and there are no secondary airports where you can save money. On the contrary, air traffic control (ATC) delays are so huge that all financial calculations on point-to-point destinations go haywire. Pilots are costing a lot of money and there’s a rat race for engineers. So where is the differentiator?”

 CUT 2008, and the scenario changes. Deccan has been aquired, and lately rechristened Kingfisher Red, Spicejet was in desperate cash crunch, unless it had Wilbur Ross pumping in Rs. 345 crores,Sahara Airlines has been aquired and rechristened Jetlite. The few other operating airlines are also not breathing easy. With crude oil touching an all time high about a month ago, they burnt pockets like never before. Then came the spate of increasing prices and fuel surcharge, but how much deficit did it cover for them is still questionable?

Now, looking at the parameters, where a particular airlines can look to leverage cost benefits is faster turn around time, more load capacity, optimum staff utilization, and no frill flights ( no snacks or meals on board). Looking at few other parameters, airport congestion ( and therefore additional costs and levies), lack of proper infrastructure, increasing fuel prices, lack of trained manpower, they are common across all the airlines, and these are the factors which account for majority of the expenses for any airlines. Obviously, all of them are trying new and innovative ways gain as much of financial leverage as possible, but is there a room for the same? And what about the government regulation which ensures that the airlines fly to unprofitable sectors as well? Can they really do much about many of these parameters. Falling rupee has further compounded the problems as the expat pilot salaries and fuel prices are paid in dollars only.

Looking at the industry trends,  air traffic in India could double to 50 million passenger journeys a year by 2010. India would need 1,100 planes over that same period, worth $105 billion. Also, Centre for Asia Pacific Aviation (CAPA) estimates expect the domestic traffic to grow 25% to 30% annually and international traffic at 15% until 2010. But, does that mean that times are out to change for Low cost careers. Perhaps, I would like to go by the words of M.Thiagarajan, MD, Paramount Airways, who feels that there should be a threshold level in pricing to provide value addition to passengers, and in whose words, “a low cost airline in our country is a fallacy and may not be in tune with the sector which is still emerging whereas in the US and Europe the vastness of the geography together with the passenger volume have been responsible for LCCs survival”.