Gray Matter: Low cost
India goes off the rails? Trains are slashing fares and ditching first-class to beat budget airlines? ? Timesonline.co.uk, March 4, 2006.india Updated: Mar 12, 2006 02:54 IST
India goes off the rails… Trains are slashing fares and ditching first-class to beat budget airlines… — Timesonline.co.uk, March 4, 2006
Meanwhile, at Terminal 1B of New Delhi’s domestic airport, there’s a subtle class conflict playing out. Passengers flashing Jet and Sahara tickets get whisked into the airport lounge, while those claiming loyalty to Air Deccan and Spice almost get hustled into one enclosure at the far end — specially-designated for the “no-frills variety”.
But the new Indian jet-setters aren’t complaining as they fish out their tickets — A4 printouts downloaded from the Net — to get past security. And nobody care cares two hoots that the no-frills check-in area resembles, as the class-conscious would snigger and say, a ‘railway platform’.
They are glad to simply fly.
It’s been just over a year since low cost carriers (LCCs) rolled out nationally. The segment has grown 100 per cent; 4.5 million LCC seats have been sold all over the country in the last one year — of them, 30 to 40 per cent have been sold to first-time fliers; SpiceJet, that started operations in February last year, says it will break even by May this year (in anticipation, the carrier has placed orders for 10 more Next Generation 737s); Air Deccan, the charter-company-turned-LCC from down south that started the no-frills movement in India 30 months ago (with one aircraft, and is today 30-strong), is toying with the idea of going public in the first half of this year; and the newest kid on the LCC block, GoAir, is all set to expand and take flight from 14 cities on April 3.
Even one year ago, the LCC segment was being looked at as a bad debt-in-the-making. The business model was all wrong, many felt; it’s a bubble that will burst; this kind of marketplace economics will not work in India; and so on.
The Indian market, adept at turning equations on their head, is now turning the sky on its head. “The aviation sector has traditionally grown at 5 to 6 per cent every year,” points out Jeh Wadia, managing director, GoAir, “Last year, the sector witnessed a 26 per cent growth — and 80 per cent of the new growth has happened because of the LCCs.”
When Air Deccan started out on a national scale last year, says the carrier’s managing director Captain G.R. Gopinath, “the government was sceptical and even Wall Street analysts had written us off. Look at where we are today,
we have 13.3 per cent share of the air travel pie.” Air Deccan is also — and already — flying to 53 airports across the country: “The national carrier Indian Airlines flies to only 41 destinations — that too, after being in the business for 52 years.”
The sector has come under the scanner over the last year. In Delhi, when flights were getting cancelled at the drop of visibility levels a few months ago, LCCs were facing the brunt of the flak. Too many of their flights were getting cancelled/delayed. Then, there was a slew of complaints from passengers who alleged they were being fleeced by travel agents (who were, reportedly, buying tickets for Rs 500 plus taxes and selling them at inflated prices).
While you can blame infrastructure, unscrupulous travel agents and matters like lack of trained pilots (and all these factors probably plague the entire aviation sector today) for these snags, the bottom line remains that LCCs are in business.
“Between April 2004 and March 2005, the number of air tickets sold was 18 million,” says Siddhanta Sharma, CEO, SpiceJet. “This fiscal [April 05-March 06], the number would have increased to 23 million; of this, 4.5 million would be in the LCC segment.”
Sharma also maintains that 70 per cent of SpiceJet’s bookings are being done on the Net. This puts paid to apprehensions that, with Internet penetration being weak in India, not too many customers would be able to access online booking facilities.
According to Captain Gopinath, LCCs have triggered off “a huge tectonic shift in consumer behaviour”. “We have broken the price barrier and also the social barrier.” But obviously, a social mission is not what the LCCs are here to fulfil. “If India has to achieve — and maintain — a GDP growth of 10 per cent, we have to realise that economic growth is not going to come from Delhi and Mumbai, it has to be all-round,” he says. Connectivity to Middle India is going to be the key. Which is where budget travel will come into play.
“How many people from Tier-II cities can afford regular fares?”
GoAir’s Wadia sums up the business model. “It’s simple: 15 million Indians take a train every day; 8 million take a flight every year. That is the potential, and that is the catchment category we want to tap.”
He takes his case further. In Europe, one single carrier, EasyJet, flies 26 million passengers every year. In India, 26 million is the seat capacity of the entire sector. “India’s middle class population is more than the population of Europe [350 million].”
It’s not easy to find a level playing field at the top, where the LCCs have handed themselves in. But Indian skies today have suddenly become the great leveller.