IndiGo, which astounded the global aviation industry last year by placing a whopping $6 billion order for 100 Airbus aircraft, is the latest no-frills airline to join the over-crowded aviation sector. About a dozen airlines, including two state-owned giants, Air India and Indian, are jockeying for market share.
The other new airlines likely to start operations over the next few months include Jagson Airways, EasyAir, Star Air, East West (which had been forced to shut down earlier) and Indus.
India’s aviation sector – both domestic and international – is booming, as millions of first time passengers take to the skies. Indian carriers have placed orders for hundreds of aircraft worth billions of dollars on the two largest aircraft manufacturers, Boeing and Airbus.
The country’s tottering airports handled nearly 75 million passengers last year, of whom over 50 million were domestic fliers. Indian airports are expected to handle about 250 million passengers in a few years time.
Last year, the industry grew by a huge 40 per cent; Civil Aviation Minister Praful Patel believes the aviation sector will continue growing at 30 per cent annually over the next five years.
The International Air Transport Association (IATA) has described India as, “ our greatest potential market.” US aircraft giant Boeing – of the 1,000 aircraft orders it got last year, 100 were from India – estimates that Indian carriers would need about 500 jets worth over $35 billion in the next 20 years, to cater to the burgeoning growth in passenger traffic.
State-owned Air India recently placed an order with Boeing for a record 68 aircraft, while Indian (also government-owned) has ordered 43 aircraft from Airbus. The Indian government plans to merge the two airlines to take on competition both domestically and internationally.
Today, the dozen-odd airlines operating about 1,200 daily flights have a mere 200 aircraft in their combined fleet. Industry analysts expect the fleet size to double in just about five years. But who is to fly these aircraft? India is experiencing an acute shortage of pilots, and airlines have been poaching on their rivals for fliers.
Many state governments find it difficult to operate their fleet of aircraft, as pilots have been successfully wooed by private airlines, some of who offer compensation packages of nearly a quarter million dollars a year.
Domestic Indian carriers have hired almost 500 foreign pilots to help tide over the crisis. The only reputed aviation institution churns out just 40 pilots a year. Flying clubs have also had to shut down, as trainers have joined private airlines.
DOMESTIC passengers are being wooed by airlines during the current lean season, offering fares that are cheaper than air-conditioned train fares. And it is not just the low-cost carriers (LCCs) who have slashed fares; even full service carriers (FSCs) like Jet Airways are offering hefty discounts.
Jet, for instance, is offering 10,000 seats under a special ‘superfare’ scheme, which is 40 per cent cheaper than usual fares. Jet, India’s largest domestic airline – with an over 30 per cent market share – has been forced to drastically reduce fares by the LCCs.
Air Deccan, the first LCC, which has been expanding its fleet and network, claims to be number two; state-owned Indian (formerly Indian Airlines), however, disputes this claim, and says it is in the second position, with a nearly 22 per cent market share.
Most other airlines, including Kingfisher, GoAir, and SpiceJet, are also offering hefty discounts to passengers in August and September. Air Deccan itself is offering about 200,000 low-fare tickets, which are priced as low as Rs500. GoAir is offering 50,000 seats at fares starting from low of Rs525, while SpiceJet has a similar number of seats at fares starting Rs1,000.
The entry of LCCs has benefited passengers tremendously. Fares on the Mumbai-Delhi sector – the busiest in the country – have fallen dramatically from about Rs6,500 about three years ago, to around Rs3,000 at present. Even FSCs have been forced to reduce fares to Rs4,500.
Can LCCs survive for long with such cutthroat fares? Rakesh Gangwal, founder of IndiGo, is confident that the new airline – which will be offering fares that are 50 to 60 per cent lower than fares charged by FSCs – would start making profits within two years. The airline hopes to carry over 6.5 million passengers in about two years time.
One recent entrant, SpiceJet, last week declared an operating profit of nearly $15 million on revenues of $95 million. The LCC, which has a nearly eight per cent market share, has a fleet of just six aircraft, but carried 1.6 million passengers during its first year of operations.
Siddhanta Sharma, chairman, SpiceJet, claims that the airline has the highest average load factor in the industry, strict cost controls and better yield management, which have resulted in better-than-expected results. The airline hopes to double its revenues this year to over $190 million.
BUT for India’s largest carrier, this has not been a good year. Jet Airways last week announced a net loss of $9.6 million for the first quarter of the current fiscal. In Q1 of 2005-06, Jet had earned a net income of $20 million. Revenues were up at nearly $360 million.
Surprisingly, in first quarter of the current fiscal, the airline carried 25 per cent more paying passengers than in the corresponding quarter last year. Domestic airlines carried 50 per cent more passengers during the April-June quarter of the current fiscal, as compared to the same period last year.
The airline attributed the loss to the spurt in fuel costs and competition from LCCs, which forced Jet to sell about 60 per cent of its tickets at discounted rates. The airline is also involved in a messy legal battle with Air Sahara, which it tried to acquire earlier this year. Jet planned to acquire Air Sahara for $500 million, and even paid an advance of $38 million – which is being written off now – but the deal got aborted following delays in getting government clearance.
The airline, which plans to acquire 10 new aircraft this financial year – taking its fleet strength to 63 – has decided to postpone its overseas offer through which it hoped to raise $800 million. According to Wolfgang Prock-Schaeur, chief executive officer, Jet Airways, the fleet will be expanded to 90 by next year.
Jet Airways has been aggressively expanding its overseas operations after the Indian government allowed established private airlines to fly abroad. The airline also attributes its first quarter losses to the international operations.
Last week Jet expanded its services to London, by launching flights from Amritsar in Punjab. The airline operates two daily flights to the British capital from Mumbai, and a daily flight from Delhi. It also operates flights to Singapore, Kuala Lumpur, Colombo and Kathmandu.
According to Naresh Goyal, the airline founder and chairman, Jet would soon start flights to the US and China, besides destinations in Germany and Italy. The airline recently signed a code-sharing agreement with Qantas, and is also considering an alliance with the Australian airline’s Singapore-based low-cost subsidiary, Jetstar Asia.
The airline, which last year came out with an initial public offering – fetching a price of Rs1,100 a share – has, however, taken a beating on the stock exchange. The scrip is currently quoting around Rs500.
With several new airlines planned to enter the crowded sector – and the likely merger of two government-owned airlines – Jet Airways will find the going tough over the coming months.