Tuesday, February 22, 2005
Low-cost flying in India
The advent of Air Deccan represented the first time Indian aviation players seemed to have understood and capitalized on a huge opportunity -- the very large number of Indians who could be convinced to fly rather than travel by train if the price point was right. By following the Southwest/Ryan Air model, Air Deccan managed to be profitable right from year one. The success of Air Deccan has led on the one hand to the major carriers (Sahara, Jet, Indian Airlines) becoming more competitively priced, and on the other paving the way for many more low-cost carriers. By the end of this year, Kingfisher Air, Spice Jet etc should all be offering the Indian customer excellent deals. The Washington Post takes note of the very fertile ground India is becoming for low-cost flying.
With Air Deccan offering fares as low as $11 -- and other airlines scrambling to catch up -- many Indians now have an alternative to the dirty and overcrowded trains that have long been synonymous with travel in this vast nation of more than 1 billion people. A similar phenomenon is taking hold in Brazil and other developing countries, where the emergence of low-cost carriers is democratizing air travel and linking far-flung communities in a trend with significant implications for social and economic development. China, where regulatory barriers have delayed the arrival of no-frills service, is slated to get its first such carrier this year. For the 12-month period ending March 31, the number of people taking domestic flights in India is projected to surpass 19 million, an increase of nearly 30 percent over the previous year, according to Kaul. Five new low-cost carriers have announced plans to begin operations during the next year.
What inspired Air Deccan founder, G.R.Gopinath to start a budget airline?
While passing through Phoenix, he said, he discovered that its airport handled about 100,000 passengers per day. "It suddenly shook me," he recalled. "I just did the numbers. It came to 30-odd million passengers a year," roughly twice the number that flew each year in all of India. "The thing that came to my mind was, just imagine what a billion seats would mean," he said. "That is 300 million people traveling three to four times a year. That is in the realm of reality. We have a middle class that is roughly equal to the population of Europe." India, he decided, was ripe for its first low-cost airline.
Skeptics told him it would never work, that the no-frills model did not apply in India because, among other things, Internet access was so limited that the airline would not be able to make enough use of online ticketing to hold down costs. But Gopinath got around that problem by starting a call center to take reservations by phone; for travelers without credit cards, he set up a network of drop-off points for cash payments. The airline also holds down costs by farming out some ground-staff duties to third-party contractors. By eschewing premium services such as frequent-flyer programs and business-class seating, it can carry more passengers per plane than conventional carriers.
The United States, with a quarter of the population of India, handles about 600 million flyers a year compared with 19 million in India. In a way, this indicates the market potential for aviation in India, at the right price point. Realizing this potential will require a significant overhaul of the civil aviation sector, of the sort that was achieved in the telecom sector by Telecom Acts of 1994 and more importantly, 1999.
For all the excitement about its potential, the airline industry in India faces significant obstacles to growth. Among them are limits on foreign investment and dismal, outdated airports that already are operating at full capacity in major cities such as New Delhi and Bombay. While the government of Prime Minister Manmohan Singh has pledged to remove such barriers, it faces strong resistance from established Indian carriers -- which regard greater competition as a threat -- and their allies in the all-powerful bureaucracy. "Aviation is still over-regulated," Kaul said. "We don't realize its social and economic importance. The day we do, aviation will go through a dramatic change."
With Air Deccan offering fares as low as $11 -- and other airlines scrambling to catch up -- many Indians now have an alternative to the dirty and overcrowded trains that have long been synonymous with travel in this vast nation of more than 1 billion people. A similar phenomenon is taking hold in Brazil and other developing countries, where the emergence of low-cost carriers is democratizing air travel and linking far-flung communities in a trend with significant implications for social and economic development. China, where regulatory barriers have delayed the arrival of no-frills service, is slated to get its first such carrier this year. For the 12-month period ending March 31, the number of people taking domestic flights in India is projected to surpass 19 million, an increase of nearly 30 percent over the previous year, according to Kaul. Five new low-cost carriers have announced plans to begin operations during the next year.
What inspired Air Deccan founder, G.R.Gopinath to start a budget airline?
While passing through Phoenix, he said, he discovered that its airport handled about 100,000 passengers per day. "It suddenly shook me," he recalled. "I just did the numbers. It came to 30-odd million passengers a year," roughly twice the number that flew each year in all of India. "The thing that came to my mind was, just imagine what a billion seats would mean," he said. "That is 300 million people traveling three to four times a year. That is in the realm of reality. We have a middle class that is roughly equal to the population of Europe." India, he decided, was ripe for its first low-cost airline.
Skeptics told him it would never work, that the no-frills model did not apply in India because, among other things, Internet access was so limited that the airline would not be able to make enough use of online ticketing to hold down costs. But Gopinath got around that problem by starting a call center to take reservations by phone; for travelers without credit cards, he set up a network of drop-off points for cash payments. The airline also holds down costs by farming out some ground-staff duties to third-party contractors. By eschewing premium services such as frequent-flyer programs and business-class seating, it can carry more passengers per plane than conventional carriers.
The United States, with a quarter of the population of India, handles about 600 million flyers a year compared with 19 million in India. In a way, this indicates the market potential for aviation in India, at the right price point. Realizing this potential will require a significant overhaul of the civil aviation sector, of the sort that was achieved in the telecom sector by Telecom Acts of 1994 and more importantly, 1999.
For all the excitement about its potential, the airline industry in India faces significant obstacles to growth. Among them are limits on foreign investment and dismal, outdated airports that already are operating at full capacity in major cities such as New Delhi and Bombay. While the government of Prime Minister Manmohan Singh has pledged to remove such barriers, it faces strong resistance from established Indian carriers -- which regard greater competition as a threat -- and their allies in the all-powerful bureaucracy. "Aviation is still over-regulated," Kaul said. "We don't realize its social and economic importance. The day we do, aviation will go through a dramatic change."
