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Domestic airlines looking at hybrid model

Domestic airlines looking at hybrid model
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First Published: Sun, Jun 15 2008. 09 46 PM IST

Tough times : A Jet Airways flight lands at Mumbai airport. Domestic carriers, facing an estimated loss of about $2 billion this fiscal, met on 13 June to evolve strategies that would bail them out, b
Tough times : A Jet Airways flight lands at Mumbai airport. Domestic carriers, facing an estimated loss of about $2 billion this fiscal, met on 13 June to evolve strategies that would bail them out, b
Updated: Sun, Jun 15 2008. 09 46 PM IST
Mumbai: Several Indian airline companies are considering adopting a hybrid business model followed in the US that combines the strong points of full-service and low-fare carriers, after failing to reach a consensus on ticket prices and rationalizing the number of flights.
A marathon meeting late Friday, under the aegis of lobbying body Federation of Indian Airlines ended inconclusively as differences cropped up between low-fare carriers and full-service carriers. Domestic carriers, facing an estimated loss of about $2 billion (Rs8,580 crore) in the current financial year, met on 13 June to jointly evolve strategies that would bail them out.
Tough times : A Jet Airways flight lands at Mumbai airport. Domestic carriers, facing an estimated loss of about $2 billion this fiscal, met on 13 June to evolve strategies that would bail them out, but failed to reach a consensus on ticket prices and on rationalizing the number of flights
“In the backdrop of high jet fuel costs and excess capacity in the market, Indian carriers are increasingly looking at the hybrid model,” said Saroj K. Datta, executive director with Jet Airways (India) Ltd, the country’s largest private airline by passengers carried.
In the hybrid model, for instance, a full-service carrier could adopt strict cost cutting measures that are normally followed by low-fare airlines, but without comprising on services offered to passengers.
Low-fare carriers could share ticket reservation systems used by full-service carriers or enter into code-share agreements with them.
Code-sharing refers to a ticket marketing practice among airlines that allows carriers to share the two characters in codes used in reservation systems. This helps customers purchase a single ticket on a journey that has two flights such as a New Delhi-Amsterdam one and an Amsterdam-New York one on two different airlines. Generally, low-fare carriers do not enter into code share agreements.
A global study of 540 airlines by travel software company Sabre Holdings Corp., released in May, revealed that 7% of 123 low-fare carriers had added enough complexity to their business models to evolve into full-service airline. Another 52% were part of an emerging breed of “hybrid” carriers, blending low-fare carrier traits with that of full-service carriers.
Low-fare carriers usually restrict themselves to point-to-point routes, single aircraft types, single cabin configuration, simple fares with interline or code-share agreements and direct distribution usually through the Internet.
The study said full-service carrier attributes being introduced by low-fare airlines include: international routes, use of global ticket reservation systems, code-share agreements, connecting services, multiple fares available at any time, advanced ticketing procedures, multiple aircraft types, multiple classes of service, interline agreements and long-haul destinations.
Emerging hybrid carriers in the US include Southwest Airlines Co., JetBlue Airways Corp., WestJet Airlines Ltd and AirTran Airways. The trend is just as strong among European carriers such as Easyjet Airline Co. Ltd, Germanwings (owned by Eurowings Luftverkehrs AG), Norwegian Air Shuttle, bmibaby (a subsidiary of British Midland Plc.), Sterling Airlines A/S, KDAvia, Centralwings Airlines, Blue Panorama Airlines and Flybaboo SA. In Asia-Pacific, Virgin Blue Holdings Ltd and AirAsia Berhad also fall into this new category.
“In India, there is a thin difference between full-service and low-fare airlines. Jet Airways and Kingfisher Airlines have already started migrating to the hybrid concept to cut losses and enjoy synergies with their subsidiaries,” said a Mumbai-based analyst who covers the sector for a domestic brokerage. He did not want to be identified.
Kingfisher Airlines Ltd plans to make its low-fare subisidiary Deccan Aviation Ltd, which runs Simplifly Deccan, use the Sabre ticket reservation system. Deccan currently uses Radixx International’s software for reserving tickets.
Jet Airways also plans to bring its low-fare subsidiary, JetLite, to Sabre from the software provided by Sita. It also plans to start selling food on board. “Jet Airways is also considering to offer code-sharing agreement with JetLite, though low-fare carriers never get into such agreements,” according to the same analyst.
A Delhi-based low-fare airline suggested the code-sharing concept in Friday’s meeting as a way out to enjoy synergies, while still competing each other. However, there was no consensus on this.
Jet’s Datta said there is a long way to go for JetLite or any other Indian carrier to adopt the hybrid concept in its proper sense. “Going forward, low-fare carriers will tend to add some frills, whilefull-service carriers will continue to cut down costs in all possible areas,” Datta said.
Kapil Kaul, chief executive (Indian subcontinent and West Asia), Centre for Asia Pacific Aviation, said the country’s three big aviation groups—National Aviation Co. of India Ltd (which runs Air India), Jet Airways and Kingfisher—would find ways to complement low-fare subsidiaries, but there could be a fourth group of low-fare carriers cooperating with each other to stay afloat.
“Call it hybrid or not, complementing each other is going to be the future as there is excess capacity in the market and yields are declining with high jet fuel cost and thining load factors,” said an executive with a Mumbai-based low-fare carrier.
“Though there was a pressure to charge tickets above the cost (of operation), carriers will not be in a position to reach a consensus as it is a company specific strategy. Airlines will also not be willing to withdraw from key routes for strategic reasons,” said another airline executive, who attended Friday’s meeting.
“The only way out is to leverage strengths by helping each other, irrespective of whether they are low-fare orfull- service carriers.”
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First Published: Sun, Jun 15 2008. 09 46 PM IST