Questi erano i loro piani a fine 2004, ma non sono mai partiti...
India's budget airlines take wing
By Raju Bist
MUMBAI - Unlike other airlines, this one doesn't have pretty air hostesses smiling out of magazine back covers. Nor does it maintain plush booking offices in capital cities and major towns across India. In fact, Air Deccan's name does not exist even in the telephone diaries of travel agents. And yet the fledgling airline has managed to do the impossible: some of its tickets in the Delhi-Mumbai sector have been sold up to a year in advance.
The main attraction here is the price of Rs500 (plus Rs200 tax), or US$15 in total - peanuts compared with the fares charged by other domestic airlines (about Rs8,000). The mouth-watering fare is one-tenth of what a well-heeled rail passenger would pay for traveling between Delhi and Mumbai on the luxurious Rajdhani Express train. The reasons for Air Deccan's popularity are thus not far to seek.
But there's a catch. Only five seats per flight are available at this price. Passengers must book their seats 90 days in advance. Air Deccan offers 75% of the seats at rates ranging between Rs500 and Rs5,000. The rest go for about Rs7,000. None of the tickets can be refunded. Besides, passengers have to do without de rigueur airline amenities - complimentary meals and snacks.
But nobody is complaining. A large part of the Indian populace, hitherto cut off from air travel because of the restrictive prices, is ecstatic. Says Manish Dholakia, a Mumbai-based garment trader, "I am booked to fly to Delhi in May 2005 to attend a family wedding. The flight will save me time, for I won't have to waste 48 hours on a train. This is the best thing to have happened for a small businessman like me." Which is in tune with what former Indian air force captain G R Gopinath, Air Deccan managing director, recently said: "Our slogan is to make every Indian fly!"
Seeing the enthusiasm with which Air Deccan has been greeted, other corporates have announced plans of floating low-cost airlines. First off the block was liquor king Vijay Mallya, who said he would launch Kingfisher Airlines - named after his best-selling beer. Heading the airline will be Alex Wilcox, who until recently held a senior position at JetBlue Airways, a US-based no-frills airline.
Nusli Wadia, grandson of Pakistan's founder Mohammed Ali Jinnah and chairman of a Rs30 billion business empire straddling textiles, engineering, food and real estate, has applied to the Indian government for setting up a low-cost airline. The yet-unnamed airline will commence operations with eight aircraft, each capable of carrying not more than 100 passengers.
Another one, AirOne Feeder Airline Pvt Ltd, will launch operations by the end of this year. This company has been promoted by five aviation professionals. The Bangalore-based airline is leasing two new 50-seater Brazilian Embraer jets. Over the next two years, it expects to increase the number of aircraft in its stable to five. To begin with, AirOne will connect the western and southern parts of India. It aims for a turnover of Rs600 million from its first year.
A dozen other industrial groups are toying with the idea of diversifying into the new sector. New airline names such as Indus Air, Crescent Air and Yamuna Airways are making the rounds. Even state-owned Air-India has taken the plunge. Normally slow in reacting to developments in the marketplace, this time it has already coined a moniker for its low-cost operation: Air-India Express. The new airline will be flagged off with 17 Boeing 737-800s, to be operated by 42 pilots and co-pilots.
As expected, the entry of budget airlines has set the cat among the pigeons. "Passengers will opt for conventional airlines because of the higher quality standards," stresses a senior official at the government-owned Indian Airlines. "They will also keep the safety factor in mind." But competitors at the two private carriers, Jet Airways and Sahara Airlines, are more charitable. "Ultimately, the name of the game is affording the huge costs involved in running an airline. For budget as well as conventional airlines, the cost of raw material [aviation fuel] and government tax will be the same."
Nevertheless, scared by Air Deccan's aggressive pricing, all three old-timers have slashed their fares. It is expected that overall, the fares will come down by 45%. In the process, the seating capacity may go up by 35%. The most visible sign of an impending price war is the decision of Indian Airlines to offer discounts ranging from 30-45% on 10 sectors. The concessions are available on a first-come-first-served basis for tickets booked even just hours before a flight's departure.
But Air Deccan chief Gopinath is not perturbed. He says he has studied the business carefully over the past few years and is no Johnny-come-lately to the aviation industry. Deccan Aviation, Air Deccan's parent company, was floated in 1997 by Gopinath and a few friends as a helicopter service for tourists. Today, it is the largest helicopter charter company in India. Air Deccan currently has 54 flights a day connecting 19 airports and operates at a respectable load factor of 83%.
The low-cost airline has placed orders for 11 new Airbuses and plans to increase by December its daily flights from 70 to 100. By March, it expects 2 million passengers and a turnover of $125 million. But Gopinath is also aware that the Mallyas and Wadias of the world are much more resourceful than him. So his only chance of making a mark is by providing impeccable service.
More than the competition, it is the government's roadblocks that Gopinath will have to surmount in his quest for further success. The government charges heavy sales tax and excise duty on air-turbine fuel, making it among the most expensive in the world. Besides, only state-owned oil companies are allowed to fill up planes on Indian soil. As a result of this monopolistic advantage, they over-charge for the fuel. Finally, terminal navigation landing charges, parking charges and landing charges at Indian airports are exorbitant compared with the international average.
In such a situation, the survival mantra would be: cut, cut, cut ... Cut your costs so that you can sell cheaper tickets, thus building up volumes in terms of numbers of passengers and, eventually, higher profitability. This formula has been replicated numerous times all over the world, particularly in the US, where budget airlines have been as profitable, if not more, than their jumbo counterparts. Southwest Airlines, for example, started operating in 1971 and turned around the corner in just two years. It is now a $6 billion company. It is also America's fourth-largest airline in terms of passenger load. On some routes, a ride on Southwest is cheaper than a car ride.
Gopinath and his ilk can learn from the mistakes of the host of private airlines that mushroomed after the Indian government threw open the sector in 1991. Many of these were floated by businessmen with deep pockets. Modiluft was an offshoot of the Modi Group, one of the biggest industrial conglomerates in north India; Damania Airways was launched by Pervez Damania, a big-time poultry farmer with strong links to the right-wing Shiv Sena party in the western state of Maharashtra; East West Airlines and Raj Aviation were the forward integrations of two of the biggest travel agencies in the country.
But today, with the exception of Jet Airways and Sahara, none of the private airlines survives. Says Ashwin Purohit, a commercial lawyer who helped structure an airplane lease agreement for one of the defunct airlines, "The problem with these entrepreneurs was that they could not keep their costs under control. They got caught up in the excitement of the new business and, in order to attract new passengers, ended up spending like there was no tomorrow."
This correspondent was witness to one such display of gaudy extravagance on a Mumbai-Bangalore Damania flight. Beer flowed freely and top-quality, multi-cuisine dinner was served in the finest china. As passengers alighted, each was handed an expensive gift hamper - even complimentary beer bottles if one asked. The beer-on-board policy of Damania eventually led to frequent brawls among drunk passengers, forcing the airline to stop serving alcohol.
Such profligacy has to be avoided at all costs, say aviation experts. They point out that there are many ways in which budget airlines can stay aloft. Costs can be cut by outsourcing most of the work barring key services, reducing the strength of the cabin crew, buying similar models of aircraft to save on parts, increasing the flying hours of aircraft, and recruiting employees on a contract basis.
There is no doubt that low-cost airlines can make a killing in the hungry Indian market if they can get their act together. Last year, on an average, 42,000 Indians took to the skies every day. In contrast, in the US, which has a quarter of India's population, 3 million people flew daily.
The proposed budget airlines can attract a whole new breed of passengers to the joys of flying - that is, if their owners learn to accept that the "budget" in their airline's tag is an asset, not a liability.
India's budget airlines take wing
By Raju Bist
MUMBAI - Unlike other airlines, this one doesn't have pretty air hostesses smiling out of magazine back covers. Nor does it maintain plush booking offices in capital cities and major towns across India. In fact, Air Deccan's name does not exist even in the telephone diaries of travel agents. And yet the fledgling airline has managed to do the impossible: some of its tickets in the Delhi-Mumbai sector have been sold up to a year in advance.
The main attraction here is the price of Rs500 (plus Rs200 tax), or US$15 in total - peanuts compared with the fares charged by other domestic airlines (about Rs8,000). The mouth-watering fare is one-tenth of what a well-heeled rail passenger would pay for traveling between Delhi and Mumbai on the luxurious Rajdhani Express train. The reasons for Air Deccan's popularity are thus not far to seek.
But there's a catch. Only five seats per flight are available at this price. Passengers must book their seats 90 days in advance. Air Deccan offers 75% of the seats at rates ranging between Rs500 and Rs5,000. The rest go for about Rs7,000. None of the tickets can be refunded. Besides, passengers have to do without de rigueur airline amenities - complimentary meals and snacks.
But nobody is complaining. A large part of the Indian populace, hitherto cut off from air travel because of the restrictive prices, is ecstatic. Says Manish Dholakia, a Mumbai-based garment trader, "I am booked to fly to Delhi in May 2005 to attend a family wedding. The flight will save me time, for I won't have to waste 48 hours on a train. This is the best thing to have happened for a small businessman like me." Which is in tune with what former Indian air force captain G R Gopinath, Air Deccan managing director, recently said: "Our slogan is to make every Indian fly!"
Seeing the enthusiasm with which Air Deccan has been greeted, other corporates have announced plans of floating low-cost airlines. First off the block was liquor king Vijay Mallya, who said he would launch Kingfisher Airlines - named after his best-selling beer. Heading the airline will be Alex Wilcox, who until recently held a senior position at JetBlue Airways, a US-based no-frills airline.
Nusli Wadia, grandson of Pakistan's founder Mohammed Ali Jinnah and chairman of a Rs30 billion business empire straddling textiles, engineering, food and real estate, has applied to the Indian government for setting up a low-cost airline. The yet-unnamed airline will commence operations with eight aircraft, each capable of carrying not more than 100 passengers.
Another one, AirOne Feeder Airline Pvt Ltd, will launch operations by the end of this year. This company has been promoted by five aviation professionals. The Bangalore-based airline is leasing two new 50-seater Brazilian Embraer jets. Over the next two years, it expects to increase the number of aircraft in its stable to five. To begin with, AirOne will connect the western and southern parts of India. It aims for a turnover of Rs600 million from its first year.
A dozen other industrial groups are toying with the idea of diversifying into the new sector. New airline names such as Indus Air, Crescent Air and Yamuna Airways are making the rounds. Even state-owned Air-India has taken the plunge. Normally slow in reacting to developments in the marketplace, this time it has already coined a moniker for its low-cost operation: Air-India Express. The new airline will be flagged off with 17 Boeing 737-800s, to be operated by 42 pilots and co-pilots.
As expected, the entry of budget airlines has set the cat among the pigeons. "Passengers will opt for conventional airlines because of the higher quality standards," stresses a senior official at the government-owned Indian Airlines. "They will also keep the safety factor in mind." But competitors at the two private carriers, Jet Airways and Sahara Airlines, are more charitable. "Ultimately, the name of the game is affording the huge costs involved in running an airline. For budget as well as conventional airlines, the cost of raw material [aviation fuel] and government tax will be the same."
Nevertheless, scared by Air Deccan's aggressive pricing, all three old-timers have slashed their fares. It is expected that overall, the fares will come down by 45%. In the process, the seating capacity may go up by 35%. The most visible sign of an impending price war is the decision of Indian Airlines to offer discounts ranging from 30-45% on 10 sectors. The concessions are available on a first-come-first-served basis for tickets booked even just hours before a flight's departure.
But Air Deccan chief Gopinath is not perturbed. He says he has studied the business carefully over the past few years and is no Johnny-come-lately to the aviation industry. Deccan Aviation, Air Deccan's parent company, was floated in 1997 by Gopinath and a few friends as a helicopter service for tourists. Today, it is the largest helicopter charter company in India. Air Deccan currently has 54 flights a day connecting 19 airports and operates at a respectable load factor of 83%.
The low-cost airline has placed orders for 11 new Airbuses and plans to increase by December its daily flights from 70 to 100. By March, it expects 2 million passengers and a turnover of $125 million. But Gopinath is also aware that the Mallyas and Wadias of the world are much more resourceful than him. So his only chance of making a mark is by providing impeccable service.
More than the competition, it is the government's roadblocks that Gopinath will have to surmount in his quest for further success. The government charges heavy sales tax and excise duty on air-turbine fuel, making it among the most expensive in the world. Besides, only state-owned oil companies are allowed to fill up planes on Indian soil. As a result of this monopolistic advantage, they over-charge for the fuel. Finally, terminal navigation landing charges, parking charges and landing charges at Indian airports are exorbitant compared with the international average.
In such a situation, the survival mantra would be: cut, cut, cut ... Cut your costs so that you can sell cheaper tickets, thus building up volumes in terms of numbers of passengers and, eventually, higher profitability. This formula has been replicated numerous times all over the world, particularly in the US, where budget airlines have been as profitable, if not more, than their jumbo counterparts. Southwest Airlines, for example, started operating in 1971 and turned around the corner in just two years. It is now a $6 billion company. It is also America's fourth-largest airline in terms of passenger load. On some routes, a ride on Southwest is cheaper than a car ride.
Gopinath and his ilk can learn from the mistakes of the host of private airlines that mushroomed after the Indian government threw open the sector in 1991. Many of these were floated by businessmen with deep pockets. Modiluft was an offshoot of the Modi Group, one of the biggest industrial conglomerates in north India; Damania Airways was launched by Pervez Damania, a big-time poultry farmer with strong links to the right-wing Shiv Sena party in the western state of Maharashtra; East West Airlines and Raj Aviation were the forward integrations of two of the biggest travel agencies in the country.
But today, with the exception of Jet Airways and Sahara, none of the private airlines survives. Says Ashwin Purohit, a commercial lawyer who helped structure an airplane lease agreement for one of the defunct airlines, "The problem with these entrepreneurs was that they could not keep their costs under control. They got caught up in the excitement of the new business and, in order to attract new passengers, ended up spending like there was no tomorrow."
This correspondent was witness to one such display of gaudy extravagance on a Mumbai-Bangalore Damania flight. Beer flowed freely and top-quality, multi-cuisine dinner was served in the finest china. As passengers alighted, each was handed an expensive gift hamper - even complimentary beer bottles if one asked. The beer-on-board policy of Damania eventually led to frequent brawls among drunk passengers, forcing the airline to stop serving alcohol.
Such profligacy has to be avoided at all costs, say aviation experts. They point out that there are many ways in which budget airlines can stay aloft. Costs can be cut by outsourcing most of the work barring key services, reducing the strength of the cabin crew, buying similar models of aircraft to save on parts, increasing the flying hours of aircraft, and recruiting employees on a contract basis.
There is no doubt that low-cost airlines can make a killing in the hungry Indian market if they can get their act together. Last year, on an average, 42,000 Indians took to the skies every day. In contrast, in the US, which has a quarter of India's population, 3 million people flew daily.
The proposed budget airlines can attract a whole new breed of passengers to the joys of flying - that is, if their owners learn to accept that the "budget" in their airline's tag is an asset, not a liability.
