Airlines: From sellers’ to buyers’ market

INDIA’S aviation industry is into upswing as it anticipates an increase of at least 20 per cent in the number of air travelers over the next five years – which will reach to 50 million from 15 million today. India offers the right market conditions for budget airlines. This is mainly due to the huge population, positive economic outlook, favorable Government policies and increase in the number of people who are open to travel. About 52 million Indians travel on premium class railways each year, who are the new prospective customers.

As new players are coming into fray to take advantage of this still-untapped-market, the travelers have reason to smile. Thanks to competition, the sellers’ market has been replaced by a buyers’ market, one where buyers can choose from different airlines. A price war is inevitable, especially given that most new airlines are trying to woo new business and not poach on existing market. The industry is going to see the bloodbath as some of them (Air Deccan and soon-to-be-launched Go Airlines) are ready to offer fares as low as Re. 1. Delhi-based SpiceJet, which will begin operations by the end of this month, has announced to offer air travel for Rs. 99. However, these are being done for the hype as only few seats will be available under such schemes. But besides all these hypes for wooing prospective customers, the existing budget airlines as well as the newcomers, are promising to offer incredibly low air fares. Recently-launched Kingfisher Airlines is offering tickets in 20 per cent cheaper than normal scheduled airline economy fares. Other two airlines – Go Airlines and Magic Air – are also to follow the suit. Feeling the heat, the full-service carriers, state-owned as well as private, are too not left behind in the race. Indian Airline’s subsidiary Alliance Air is to convert into a low-cost carrier. Also the private airlines like Jet Airways and Air Sahara are into cutting their fares to sustain their position in the market.

This, certainly, is a good sign for the aviation market, which was not explored for so many years. This is going to be a good time for buyers also. But for the market players the road ahead is not very smooth. Though they are enthusiastic for rediscovering this huge un-tapped market but it is going to be a tough fight for them as competition is high. Observers are already questioning whether profits are sustainable once full-blown competition arrives. Despite rising passenger numbers, the industry has several underlying problems that could overwhelm new airlines. Though any competition is good for market but the industry has to face other constrains like steady increase in the ATF prices, which account for 40 per cent of the cost of operation. Poor infrastructure of existing airports and delay in new addition to airport numbers are going to play a spoilsport. Also the industry is going to face shortage of manpower in terms of senior pilots, engineers and Air Traffic Controllers (ATCs). At present there are about 1,000 ATCs in India. The ATC staff shortfall is pegged at 40 per cent in New Delhi and 50 per cent in Bombay.

As the favorable approach by the Government deserves applauds but its failure to take speedy decisions are cause of concern. Increasing the number of airports, improving better infrastructure for existing ones, encouraging strong public-private partnership and opening up the skies for other private airlines in all sectors, are some of the major issues that the Government has to address immediately. Otherwise, we will fail to put India as a hub in the map of south-east Asia.