Will the entry of AirAsia India and the new Tata-Singapore Airlines joint venture into the aviation Indian market make air travel cheaper?
The short answer to that, unfortunately, is: unlikely in the near term.
Rival carriers expect AirAsia India to unleash a price war in the domestic market. But it would take the joint venture between Malaysian low-cost carrier AirAsia, the Tata Group and Arun Bhatia of Telestra Tradeplace, at least eight months to a year to reach a significant scale to challenge existing players.
AirAsia India will start with a fleet of three aircraft with Chennai as its base. Tata-SIA is unlikely to start operations before mid-2014. So, fares will remain high at least till then.
AirAsia Group CEO Tony Fernandes has promised “nano fares” and has said the revenue management of Indian carriers was “very poor” and airfares “just too high”. But the big question is whether AirAsia be able to replicate the success of its low-cost model in India.
Airlines point out that AirAsia is entering a market where the industry lost `19,000 crore between 2008 and 2011. “AirAsia pulled out of Delhi and Mumbai last year owing to high operating costs,” said an airline executive.
“Just because AirAsia is successful in Malaysia does not mean it will be successful in India,” said Saj Ahmad, a London-based aviation expert. “AirAsia will have to pay top-dollar for slots. There’s no way it will get anything cheap.”
“In the short term, these new entrants will struggle to make any money. To be sustainable, they will need to be innovative. India is a saturated but immature market where air travel is not the first or preferred method of travel. That is a major roadblock these airlines to overcome,” Ahmad said.
“Airlines are getting a progressively lower share of what the customer pays,” said Aditya Ghosh, president, IndiGo. “With airport charges, fees, taxes and new charges being introduced every once in a while, passengers are screaming but they do not realise that they are also paying for airport development fee, user development fee, passenger service fee. We have to find a way to make it cheaper for people to travel and one of them is to have more planes,” he said.
Kingfisher Airlines’ grounding in October last year took away significant capacity from the domestic market. This had a direct impact on demand and supply, resulting in higher fares.
“Rising airfares are a direct result of the demand-supply mismatch in the Indian domestic market following Kingfisher’s grounding,” said Rajji Rai, chairman of Swift Travel International Ltd. “The irony is that the so-called low-cost carriers have become the same as full-service ones,” he added.
“The entry of AirAsia India and the Tata-SIA will certainly give customers added choice and variety, but ultimately both will be chasing the small amount of traffic that India has to offer. But you have to wonder just how low fares can go before airlines realise it’s not making them any money,” Ahmad said.