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.
Raju Bist is a Mumbai-based
freelance journalist. He can be contacted atinwo@rediffmail.com
.
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