2006 INDIAN AVIATION SCENARIO

Let’s dwell a bit into the history of private Airlines in India first and then work our way down to the part where I come up with some thoughts on Low Cost Carriers.

Aviation has come a long way in India since the Government opened up the skies for private players in the 1990’s. In the early days, the regulation still did not suit the entrants to the airline business. In fact, Airlines that were licensed those days were known as “Air Taxis”. The move to encourage private sector in India at that time prompted a lot of investors, mainly local, to invest in a business that they knew very little about. A few of them fell by the wayside real early and some managed to stay afloat for a few years.

Ultimately it was a matter of which Airline had the better business plan, better long term views, that survived. In the jet Aircraft segment, the survivors were Air Sahara as it is now called and Jet Airways. Jet Airways better success in the business and managed to keep a public visibility of being a “premier” airline. There was no concept of a “LCC” (Low Cost Carrier – for non industry readers) in India at that time and hence the carriers mentioned come under the banner of “legacy” carriers (full service carriers). Several “feeder” Airline also started at the same time and the only one that stayed the course was Jagson Airlines based at New Delhi and offering short haul flights using Dornier 228 Aircraft.

A note on LCC’s in India. The “pioneer” here is Air Deccan that started flying ATR 42 on regional short haul routes, expanding to Airbus A320 family for medium and long routes. They started a revolution of sorts by offering fares as low as Rs. 500 (US$10 roughly) on sectors as long as two and half hours. Following their lead, several carriers have now taken to the skies, calling themselves LCC’s, some in the traditional mould of an LCC such as having a no frills service. These Airlines today include SpiceJet (a new avatar of erstwhile Royal Airways and Modiluft) and Go Airways. Kingfisher Airlines, another startup promoted by the Beer and liquor Conglomerate UB Group also positioned itself in the market as an LCC while offering full service on board and portraying their cabin crew as models (as in fashion model!).

An Airline with a different business plan started flying in the latter part of 2005 called Paramount Airways. This Airline has leased Embraer ERJ 170 family as positioned themselves as an “all business class” Airline offering direct routes from its Coimbatore base to some of the Metros in India. Several Airlines are due to take to the skies this year and the next, in India. The infrastructure and ATC facilities are woefully inadequate to handle the influx of Airlines and that is a separate subject for discussion.

The number of flying passengers, in a country of one billion people, rose by 24% to 11 million in 2004 compared to the previous year. The growth is further estimated anywhere between 20 to 30% annually over the next several years, depending on which agency one talks to. Therefore, there is certainly a requirement for additional capacity in the form of existing players adding Aircraft and new ones coming in to service regional airports. The potential is definitely there.

The definitions of a true LCC in India is lost or confused, in my opinion. There is a mix up between offering low fares and being low cost. The cost of operating an Airline is almost the same for any carrier whether LCC or legacy, except for the fact that some LCC’s don’t offer in-flight catering and the passenger has to purchase the same. The other point is that the LCC’s have high density seating as opposed to the legacy carriers that offer more legroom in the same type or class of Aircraft.

LCC’s in India don’t have the same benefit as those, for example, Ryanair in Europe or SouthWest Airlines in the US. These Airlines can keep their cost down further by being able to hedge their fuel requirements, at a lower price, something that no Indian carrier has been allowed to do. LCC’s abroad have another benefit. They maintain low costs by flying into secondary airports of the same city and by signing agreements with the Airport owners to have very low fees at those airports and also making these Airports actually pay for construction of terminals and getting other such benefits. There are no such secondary Airports for any city in India at this time. So, all carriers have to fly into the same airport and use the same terminal regardless of whether they are an LCC or a legacy carrier and pay the same rates published. Since pilots and other qualified personnel are in short supply, all carriers are resorting to hiring foreign pilots, engineers and even top executives. Obviously due to demand outstripping supply, pay scales are going through the roof for qualified personnel. LCC pilots don’t get lower pay than legacy ones because of this demand supply gap.

It is my contention that Low Cost Carrier is a misnomer in India and these Airlines should be called “Low Fare Carrier” in reality. There will be further pressure on bottom lines of the so-called LCC’s due to rising fuel prices in 2006. How long will ridiculously low fares last in this scenario? Wait for my forecast.

There will be more articles on the lack of infrastructure on the ground and what the Government of India is planning to do to rectify this situation. There will be another article shortly about the growth of carriers, their expansion plans this year, their public offerings to raise money and my forecast for 2006.

Until next time, I wish Happy Landings to all my readers.