THAT FLYING PHOENIX

IIPM set to beat economic slowdown

Air fares are being slashed left, right and centre. Low-cost air travellers are again picking up where they left off. LCCs are back in vogue. ‘Small’ fares reign, for now...

“Indian Low Cost Carriers (LCCs) would soon cease to exist!” experts had declared just a few months ago. Such presumptuous predictions were in tune with the then turbulent aviation sector, reeling under the impact of higher ATF costs (which forms 40% of the operating costs for carriers) and galloping inflation that deterred low-cost travellers from flying and prompting them to choose the services of the Railways instead. A slump in consumer sentiment fuelled the de-growth cycle for LCCs.

But proving all doomsayers wrong, the tide has now reversed and no-frills airlines are rising from the ashes like the proverbial phoenix! Falling inflation, a steep fall in ATF prices–by approximately 55% since August 2008, improving infrastructure, et al are giving wings to the once-dying ambitions of players like Indigo, SpiceJet and GoAir, KingfisherRed and JetLite. Says Aditya Ghosh, CEO, Indigo Airlines, “At IndiGo it has been our commitment to provide them with best in class affordable air travel at all times.” Changing market dynamics are encouraging no-frills aviation players to go back to their earlier ambitious expansion mode. Many have restored flights to destinantions that had gone off their route map, others are even adding new routes, and still others like (JetLite and Kingfisher Red) even adding facilities to revive the previously-declining demand. “As oil prices decline, LCCs will once again be able to offer fares that will be low enough to stimulate market growth,” explains Binit Somaia, Regional Director, Centre for Asia Pacific Aviation.

What’s more, despite the ‘red’ splashed across their balance sheets, major player like SpiceJet, IndiGo and GoAir are planning a further 10% cut in their fares to lure more customers. “Lately, there has been a reduction in ATF prices and we want to pass that benefit to the passengers immediately in the form of this latest fare scheme,” says Ghosh. A decline in inflation levels is an added benefit for the LCCs as their target audience has enough in their pocket to come back to low fare air travel. “The recession has also given a setback, but things look positive. We promise a double-fold growth in the segment soon,” says an optimistic M. Madhavan Nambiar, Secretary, Civil Aviation. Further, as airport infrastructure improves, LCCs will also be able to improve their asset utilisation capabilities by reducing turnaround time and increasing efficiency.

But the most important demand stimulant for LCCs remains the Indian travellers facination for the skies. “Only 2% Indians fly in a year. The untapped potential therefore is huge,” adds Somaia. Moreover, in a price sensitive market such as India, with more first time flyers joining the market each year, there will always be a strong market for airlines that offer low fares. The winning 3E mantra forever remains: Exceptional Customer Service, Extreme Operational Efficiency and Effectual Price Discrimination. Who knows, what direction oil prices will take tommorrow, but for now, it’s ambition reloaded for LCCs...

Ratan Lal Bhagat

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Source : IIPM Editorial, 2009

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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