Mumbai: At least half the capacity of India’s domestic carriers has shifted towards low-fare and all-economy flights as the three big airline groups reduce their exposure to the full-service segment even as their margins are squeezed by intense competition with discount airlines.
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Low-cost carriers have increased their share of the capacity from around 30% a year ago, aviation experts say. For travellers, the increased capacity would mean continuing low fares.
For the aviation industry, it means more intense competition between full-service and low-cost carriers, the promise of a resumption in traffic growth and possibly, faster consolidation.
The country’s largest private and full-service carrier, Kingfisher Airlines Ltd, has its low-fare and all-economy service Kingfisher Red, the erstwhile Air Deccan, now operating at least 50% of its capacity.
India’s second largest private carrier by passengers carried, Jet Airways (India) Ltd, has nearly 50% of flights operated by its low-fare unit JetLite (India) Ltd and its no-frills economy class service Jet Airways Konnect.
State-owned National Aviation Co. of India Ltd (Nacil), that runs Air India, has firmed up plans to start a full-fledged low-fare and all-economy-class service operated by Air India Express, which is now operating on short haul international routes and select domestic routes.
“The low-fare flights grew by 20% from last one year to reach more than 50% currently, primarily due to Kingfisher shifting to Red. By the end of this fiscal, India will be having over 70% of flight capacity under low-fare space. There is no market for full-service flights beyond six metros,” said Kapil Kaul, chief executive (Indian subcontinent and Middle East) of the Centre for Asia Pacific Aviation, an aviation consulting firm.
Kingfisher Airlines offers 425 departures a day—connecting 70 cities with a fleet of 75 aircraft.
Budget travel: According to DGCA figures, low-fare airlines had carried nearly 52% of total domestic passengers in May. Madhu Kapparath / Mint
“We had put more than 50% of our capacity under Kingfisher Red. Based on the demand on pattern of routes, we will increase or decrease the Kingfisher Red flights. The non-peak hours of metro routes is also served by Kingfisher Red,” said a senior Kingfisher Airlines executive who didn’t want to be named.
According to the Directorate General of Civil Aviation figures, low-fare carriers including Kingfisher Red had carried nearly 52% of total domestic passengers in May.
“This was one of the triggers for full service carriers to shift majority of their services to low-fare space. On the top of it, all carriers are dropping the fares to catch the market in this traditionally lean season, though this will add to losses,” said an airline expert, who did not want to be identified.
Domestic carriers are estimated to have posted a combined loss of $2 billion for the last fiscal due to excess capacity in the market and high jet fuel prices.
“If industry-wide capacity goes down significantly, then we can see improved yields and coupled with improvement in the economy the premium traffic will return, which will result in the improvement of yields. But we have to be prepared for a scenario where yields are depressed and for that reason we have launched this new sub-brand Jet Airways Konnect in order to cater to more price-sensitive travellers,” said Wolfgang Prock-Schauer, chief executive officer of Jet Airways.
A person close to the development said Jet Airways is converting at least eight of its Boeing 737 planes to all-economy from the existing two-class configuration.
“The idea is to move more flights to Jet Airways Konnect. For the time being, the strategy would be to add more flights under Konnect, in the context of (the) downturn in the market. Jet Airways can change the configuration as and when the market returns to normalcy,” he said. The person didn’t want to be named.
Jet Airways Konnect currently operates around 100 flights daily while Jet Airways, including JetLite, operates 444 flights a day. According to Tara Naidu, chief of commercial officer at Air India Express, the low-fare unit of Nacil, the airline would be starting full fledged domestic operations by this calendar year-end. “Certainly, there would be a pressure on the margins. But there is a market for low-fare service. We will be finalizing the roll-out plan shortly,” Naidu said.
However, the fourth full service carrier, Paramout Airways Ltd, which operates five 70-seater Brazilian made Embraer planes with only first and business classes, is claiming that it is getting more passengers who want to fly business class.
“We are getting passengers who always wanted to fly business class. With other carriers shifting many flights to all-economy class, we are now able to catch some of the business class passengers of Kingfisher and Jet Airways,” said M. Thiagarajan, managing director of Paramount Airways, that till recently restricted its operations to south India.
But the heat is going to be on traditional low-fare carriers such as SpiceJet Ltd, IndiGo, run by InterGlobe Aviation Pvt. Ltd, and GoAirlines (India) Pvt. Ltd, which operates GoAir, as big airline groups expand into their turf.
A.K. Sachdev, chief operations officer with GoAir, did not comment on the pressure on airline profits, adding that survival was more important.
SpiceJet’s chief commercial officer Samyukth Sridharan said it was too early to assess implications of the trend.
“This shows clearly that low fare carrier concept works in India. We are already there in that space. We will focus more on our brand, product deliveries and services in this context,” Sridharan said on the sidelines of an aviation conference organized last week by media business firm Terrappin Holdings.