India's domestic market is undergoing a second round of liberalisation and this time it looks like baing a success
If at first you don't succeed try, try again. On the surface, this is what appears to be happening in India, where the domestic market is undergoing a second wave of liberalisation following a difficult initial experience in the 1990s.
But below the surface, say industry observers, there are reasons to bet on India's new group of start-up airlines being far more successful this time. In the 1990s, more than a dozen carriers were established, and only two – Air Sahara and Jet Airways – survived. But there are fundamental differences this time. With lessons learnt from the first liberalisation push, the new players are generally better capitalised, have brought in foreign management expertise and, importantly, the momentum for real change is truly behind them. With consumers now demanding lower ticket prices, the government can no longer provide the kind of stifling protectionism to state-owned Air India and Indian Airlines that it did before.
"The added stimulus of new low-cost carriers and India's rapidly liberalising market will ensure India's recent strong growth continues for some time," the Centre for Asia Pacific Aviation (CAPA) consultancy said recently, outlining growth projections for the subcontinent.
Travelling population
Although it has a population of more than 1 billion people and a rapidly expanding middle class, only a tiny percentage of India's population travels by air, in part due to the high costs of domestic flying. One well-quoted statistic is that more people travel by train each day in the country than travel domestically by air in an entire year. But CAPA expects the new players will help domestic passenger numbers – which amounted to only around 15 million last year – to rise by 5 million annually over the next decade.
China is regarded by many as an important catalyst for the latest wave of liberalisation in India, as the Indian government has seen what China's deregulation measures have done for so many parts of that economy. In addition, as low-cost airlines have become more established in other parts of Asia and the business model gains fans, India has realised that its market is one in which low-cost airlines can thrive.
India's low-cost scene was set by Air Deccan, which was a little-known charter operator until it launched scheduled services in 2003 using ATR turboprops on secondary routes in the south. It billed itself as the country's first low-cost, low-fare, no-frills airline, and last year it began challenging the full-service incumbents on trunk routes with Airbus A320s. Air Deccan recently ordered another 30 A320s and 30 ATR turboprops to support its aggressive expansion plans, and its runaway success has prompted many others to seek a piece of the action.
Several other well-capitalised groups are now planning low-cost airlines of their own, the most ambitious of which is Kingfisher. Owned by liquor company UB Group, which is headed by flamboyant entrepreneur Vijay Mallaya, and named after its top-selling beer, Kingfisher ordered 10 A320s and three A319s directly from Airbus and outlined grand operational plans. It is targeting an early-May launch with four leased A320s in single-class configuration.
Enhanced product
Kingfisher is marketing itself differently from the other new-starts as it will offer some frills such as hot meals. It will also bring something new to the market, as it will be the first Indian carrier to have personal televisions fitted at every seat. Chief operating officer Alex Wilcox, who like several other executives previously worked at JetBlue Airways in the USA, says Indian consumers demand some amenities on board, requiring a product that stands out from the rest.
SpiceJet is another new-start that has been making headlines. It plans to launch services with Boeing 737-800s, as early as May. It is being established from the shell of former domestic carrier ModiLuft, which operated between 1993 and 1996, after which the registered company was renamed Royal Airways.
Over the years several groups have attempted to resurrect the carrier and it is now controlled by non-resident Indian nationals. In recent months, other minority shareholders have come on board, including international financial institutions such as ABN Amro, Citibank and Goldman Sachs.
SpiceJet plans to offer a true no-frills, low-fare product, initially using leased 737-800s, but later adding 10 737-800s that it has committed to ordering from Boeing. Canadian low-fare carrier CanJet's former chief operating officer Mark Winders has been appointed chief executive. He says: "Driving a low-cost structure, boosting productivity and delivering value will be our focus."
There are other would-be carriers that are being taken seriously, such as Go Air. In the process of being established by local conglomerate Wadia Group, it wants to launch operations later in the year using leased A320s or 737s. It, too, is planning to offer no frills and low airfares.
And there are more would-be carriers, say manufacturing contacts, being looked at as potentially serious new players but which for now are keeping their plans out of the newspapers.
While this latest wave of entrants may prove a boon for consumers in terms of additional choice, there are underlying problems that may keep some of the new players' grand expansion plans grounded.
Infrastructure improvements are desperately needed at key airports to cope with so much new capacity. There is also a severe shortage of pilots that will only get worse, while high taxes still plague the sector. In addition, there is always the threat of the Indian government changing regulations with little or no warning.
But most believe the biggest challenges will be overcome this time, and that with momentum truly on the side of the new players, this round of liberalisation will be a successful one.
NICHOLAS IONIDES SINGAPORE
Source: Airline Business
