Mumbai: India’s largest airlines were forced in May to raise ticket prices to counter rising prices of aviation fuel and potential combined losses of $2 billion in the year to March 2009. These carriers are trimming costs, getting out of low-profit routes, and thinking up new business models to fly over a looming crisis.
Still, silk farmer-turned-aviator G.R. Gopinath, pioneer of the Re1 air ticket and founder of India’s biggest low-cost airline Simplifly Deccan (formerly known as Air Deccan), believes low-fare carriers are still feasible since in a country where travelling by air is still aspirational, less than 4% of Indians are flying.
Trendsetter: G.R. Gopinath, vice-chairman of Deccan Aviation Ltd. (Photo: Hemant Mishra/Mint)
Now vice-chairman of Deccan Aviation Ltd after Vijay Mallya’s Kingfisher Airlines Ltd bought the company last year, he’s all set to launch a full-fledged cargo airline.
Last week, after receiving an award for the best budget airline of 2008 from Hindi business channel CNBC Awaz, Gopinath told Mint in an interview that ticket prices have to be raised for the industry to sustain, but low fares should also be available to keep the momentum. Edited excerpts:
Low fares and low-cost carriers are going to stay. The model is all about cost-efficiency. You should be innovative and initiatives towards that should be effective.
Low cost is also about inclusiveness. Air Deccan was Tata’s Nano. Nano wants to enable the middle class to graduate to cars from scooters and motorbikes. Similarly, Air Deccan was for the common man as only 2% of the Indian population was flying. If you could draw in a small percentage of the remaining 98%, it would be a great boom for Indian aviation.
I had launched the Re1 ticket to stimulate the market. When I was flying my plane with 20% seats vacant, it was judicious to offer those seats at cheaper rates.
This would not only increase my collection but also stimulate the market. By increasing fares, airlines end up chasing the same set of passengers. You must remember that in this country, only 40 million people are flying.
When fuel prices went up two years ago, Air Deccan imposed a Rs500 surcharge along with the base fare of Rs3,000 for a Bangalore-Delhi flight. Other airlines, including full service carriers such as Jet Airways and Indian Airlines, had to impose the same fuel surcharge of Rs500 but they cut their base fare to Rs2,500.
Obviously, this favoured full service carriers because with the same fare, passengers would prefer flying full-service carriers. Then there came a situation when every airline started charging Rs2,500 as base fare. This led to an unhealthy competition.
Prices need to go up. Three years ago, Air Deccan was selling a Bangalore-Delhi ticket for Rs4,000. We were short of Rs5,000 per ticket when it came to covering our costs. Today, Deccan needs Rs6,740 to break-even with 80% passenger occupancy.