http://www.deccanherald.com/deccanherald/may152005/spotlight919222005514.asp
It's getting crowded up there B S Arun in New Delhi Air fares have touched rockbottom. Airlines are flying high. But for how long? The runway is getting crowded, the queue grows longer for the take-off. As low cost airlines (LCA) want to taxi in tens, the passengers are in for a pie in the sky. Two such airlines are in, and there are 12 waiting in the wings. While Air Deccan, which revolutionised the Indian skies by keeping fares at rock bottom - it came up with a Re 1 ticket recently - Kingfisher Airlines from the stable of beer king Vijay Mallya made a kickstart early this month. SpiceJet, previously ModiLuft, will join the rat race later this month and Go Air of Jeh Wadia of Bombay Dying along with Magic Air of Ms Neera Radia, who tried her hand in leasing aircraft and public relations, are likely to be launched this winter. The crowd There are others who are either awaiting no-objection certificates from the civil aviation ministry or have made their intentions clear, like Yamuna Airlines, promoted by Gill brothers of London who plan to pump in $ 500 m in the venture slated to take off by winter, Visa and Air One are floated by former Indian Airlines employees and pilots, Inter Globe (various general sales agents), and others such as Paramount, Indus Air and Skylark. Then there are two state-owned airlines who also want some of the domestic budget airline space - Air India Express (AI's overseas budget carrier) and Alliance Air, which will be converted into budget a airline. There maybe ten new budget airlines in the next 18-24 months. Why do so many people want to float airlines, and, at rock bottom fares? Is there really that much traffic in the country for them to fly? Will all of them sustain low fares and survive? As for survival, one has to wait for a couple of years by which time the results will be out. The attraction is the volume of traffic that India is generating now. With most of the LCAs targeting upper class train passengers, the market certainly appears big, says Mr Ajai Singh, director, SpiceJet: "A total of eight lakh passengers travel by I- and II AC by train every day. Compare this with a mere 40,000 aircraft seats daily. Hence, we are targeting them". An industry analyst says: "There is a huge space for the budget airlines to grow because the market is huge". As for the gimmicks, the sky is the limit. There are Re 1 and Rs 500 tickets. "There are merely 4-5 seats in this category and the mileage they get because of this in the media is nothing compared to the business they generate this way", say industry sources. Domestic market According to Civil Aviation Minister Praful Patel, domestic carriers carried 1.77 crore passengers in 2004 (IA 67.16 lakh passengers, Jet Airways 77.62 lakh, Air Sahara 24.9 lakh and Air Deccan 7.4 lakh), which was about 24 per cent more than the previous year's tally. The total number of aircraft is 190, of which 170 are available for daily operations. Mr Kapil Kaul of the Centre for Asia Pacific Aviation, says the Indian domestic market will grow to 45 m by 2010. What about the economics? There are two areas where costs are same for LCAs and full-service operators - aviation turbine fuel (ATF) and airport (landing and parking) charges. ATF is a huge burden on domestic airlines in India as it accounts for nearly 40 per cent of operating cost. This is where budget carriers get hit most. If they want to become viable, they have to sell over 60 per cent of their seats on all routes, especially because their per seat fare is lower than full-service carriers. They normally have a 40-seat advantage over regular carriers - 174 or 180 all-economy seats as against 135-140 seats in two classes of regular carriers. Secondly, they survive by cutting costs. They can cut cost - this is what most budget airlines do - in many ways. These include reduction in distribution cost, turnaround time, allowing ads on aircraft, low staff ratio etc. Distribution cost includes ticket cost which is anywhere between Rs 120-330 per ticket. Air Deccan and Kingfisher have a unique ticketing system as passengers can book tickets through internet. "Imagine savings of an average Rs 150 per ticket - Deccan just carried one million passengers, see what they have saved", an analyst says. Budget airlines also cut costs by taking less turnaround time at airports. Since most are going to be no-frills carriers (except Kingfisher), it takes less time to clean the plane and passengers board the flight quickly because most are first-time fliers and eager to get in. Saving 20-40 minutes at each destination means that an airline can easily fly for two more hours and fly to one or two more destinations besides the regular ones. Deccan permits ads on the craft and earns money. Unlike the regular airlines, budget carriers have less staff per plane. As against the IA's whopping figure of 397 per aircraft and Jet and Sahara's 164, Deccan has trimmed it at 72. The profits Despite the intricacies, how profitable is the venture? Deccan, according to its CEO Capt G R Gopinath, broke even the first year and started making a profit thereafter while Rajya Sabha MP Mallya says he will earn a profit from the first year. According to Mr Singh, SpiceJet will become cash neutral within six months of the launch and profitable within the very first year during which it plans to ferry two million passengers. Says Mr Wadia: "We will have more seats at Re 1 than the number of seats provided by Air Deccan's at Rs 500. And we will make money". Where do they get money to purchase aircraft? Well, industry analysts say it is not very difficult. "All you need to float an airline is Rs 30 crore as capital base and 15 per cent of capital to buy planes. If the airlines want, plane makers themselves arrange financiers. There is also the option of leasing planes which is much cheaper. If your credit rating is good, FIs will be after you to provide loans", industry sources say. Despite the apparent success of Air Deccan, what worries industry watchers is airport infrastructure. Mr Patel told Deccan Herald recently: "It is certainly a worrying situation. But we are doing our best." As the skies become crowded, the ministry fills up vacant posts in air traffic controls in all airports. Finally, poaching. Right now, all airlines are concerned at the prospect of poaching, mainly of pilots by rival carriers. Sahara is the worst hit as others, including Air India, Kingfisher and Spice have taken away 17 of its pilots resulting in grounding of two routes since April. Sahara has spent between Rs 20 lakh and Rs 50 lakh on each pilot for training. But for now the consumer is king.
