Mumbai: India’s privately-owned low-fare carriers such as SpiceJet and IndiGo are aiming to make a dent in short-haul international routes, similar to the impact they’ve made on the domestic market, with the government allowing them to increase services to West Asia and Southeast Asia.
Early this year, the government dispensed with a clause that gave national flag carrier Air India Ltd the first right of refusal to fly international routes, thus opening up these routes to low-fare carriers that offer nearly 70% of airline seats in the domestic market.
That debt-ridden full-service carrier Kingfisher Airlines Ltd has stopped flying overseas is only helping their cause.
According to a statement by the ministry of civil aviation in July, IndiGo, run by InterGlobe Aviation Ltd, was allowed 63 services per week this summer. These include 28 flightsto Dubai. IndiGo in July surpassed Jet Airways (India) Ltd to become the largest domestic carrier in terms of number of passengers carried.
Steady performer: International traffic has been growing at a compound annual rate of 11.8% over the last eight years, remaining in the positive territory even during the downturn of 2008-09.Photo: Harikrishna Katragadda/ Mint
IndiGo and SpiceJet have conquered the domestic market but are yet to prove their worth in the international market, facing tough competition with rival airlines Air Arabia and Air Asia.
In addition, IndiGo has also been given bilateral rights to fly to Singapore, Bangkok, Jeddah and Kathmandu. “This is significant in the background of the fact that earlier their total services to international routes were only 53 per week,” the ministry statement said.
IndiGo declined to comment for this story.
SpiceJet Ltd can now operate 49 new overseas services, including to Dubai, Riyadh, Guangzhou, Male, Bangkok, Hong Kong and Kabul.
“At present, international operations contribute nearly 4% of our total revenues. We are planning to increase this to 15-20% in the next three years,” said SpiceJet chief executive officer Neil Mills. At present, SpiceJet connects four international destinations—Dubai, Kathmandu, Colombo and Kabul.
Low-fare carrier GoAir, run by Go Airlines (India) Ltd, also plans to fly short-haul international routes.
Full-service rival Jet Airways has been provided 56 new weekly international services, including 14 each to Kuwait and Singapore, and seven each to Dhaka, Chittagong, Dar-es-Salaam and Male. A senior Jet Airways executive, requesting anonymity, said his carrier had no intention of competing on fares as it offers full-service flights. It has no immediate plans to use Jet Airways Konnect, the all-economy, low-fare unit, on short-haul international routes, he said.
According to the Centre for Asia Pacific Aviation (Capa), short-haul international traffic from India to the Gulf, South and Southeast Asia, and Central Asia is projected to grow 10% in financial year 2013, with the SpiceJet and IndiGo flights. Overall international traffic is expected to see growth of 8-10%, Capa added.
“While the Indian aviation sector has been through various ups and downs since the introduction of major reforms in 2003-04, international traffic has been the steady performer, growing at a compound annual rate of 11.8% over the last eight years,” Capa said in a report released early August. “Even during the economic downturn in 2008-09, when domestic traffic registered a double-digit decline, international traffic remained in positive territory, growing at over 6%.”
Low-fare carriers are expected to launch more international routes by October.
They will face competition from international carriers. Customers will benefit from this but it will pose a challenge for the Indian companies, said Amrit Pandurangi, senior director at consulting and auditing firm Deloitte Touche Tohmatsu India Pvt. Ltd.
Capa expects domestic capacity to be moderate for the next 12-18 months, but subject to bilateral regimes opening up more decisively, international expansion on four-five hour routes will be more aggressive, said Kapil Kaul, chief executive officer (South Asia).
“Capa has maintained since 2004-05 that the domestic and regional international market will be largely dominated by low-fare carriers. In the domestic market, we have seen low-fare carriers dominate but we will see a similar trend in regional international markets,” Kaul said.
Kaul, however, cautioned that low-fare carriers should have adequate capitalization to support international expansion as break-even on these routes could take up to 1.5-2 years. “I do see challenges for some of the low-fare carriers with respect to raising enough cash to support their international operations based on their current financial position,” he added.