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Delhi-Mumbai focus puts GoAir in trouble

Delhi-Mumbai focus puts GoAir in trouble
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First Published: Thu, Jul 24 2008. 09 03 AM IST

Peer pressure: GoAir’s Jeh Wadia. Photograph: Pankaj Nangia/ Bloomberg
Peer pressure: GoAir’s Jeh Wadia. Photograph: Pankaj Nangia/ Bloomberg
Updated: Thu, Jul 24 2008. 09 03 AM IST
Mumbai: Wadia Group’s GoAirlines (India) Pvt. Ltd, which runs low-fare carrier GoAir, could be forced to pull out from some of its most profitable routes because of a near boycott-like decision by peers not to help it meet a regulatory requirement that mandates India’s airlines also connect remote areas.
Peer pressure: GoAir’s Jeh Wadia. Photograph: Pankaj Nangia/ Bloomberg
India’s aviation rules mandate domestic airlines fly a certain percentage of their flights to smaller cities and towns that are poorly connected. GoAir had met this requirement by buying seats from other airlines that fly to such regions, while operating its own flights only on the more lucrative routes.
But now rival carriers have said they will not be able to continue such transactions any longer as they are also pulling back on such unprofitable routes.
“All airlines are making losses and we all need to cut routes,” said a senior executive with a New Delhi-based airline. “We also have to meet the requirements set by the government (on us) and are not in a position to sell excess seats to GoAir.”
The executive, who didn’t want to be identified, also said GoAir has crowded the Mumbai-Delhi sector — the most profitable in India and accounting for nearly one-sixth of the country’s air traffic by passengers — by deploying its maximum capacity in this route. GoAir runs a fleet of six planes, most of which are deployed on eight flights daily between the two cities. It has minimized the number of flights to other cities.
Until June, GoAir had bought seats to smaller destinations from IndiGo, run by InterGlobe Aviation Pvt. Ltd, but the Gurgaon airline, as also others such as Jet Airways (India) Ltd and SpiceJet Ltd, have decided they will no longer sell seats to GoAir.
Neeraj Kapoor, GoAir’s vice-president of marketing, declined to comment.
“Every airline is cutting down capacity and it is a huge challenge to maintain...obligations. Typically, a mid-size plane on far-flung routes is flying with three-fourth of its seats empty,” the analyst said, asking not to be named.
India’s so-called route disbursal rules have divided its domestic routes into three categories: category I, which represents the profitable routes, including major cities such as Mumbai, Delhi, Bangalore, Hyderabad, Kolkata and Chennai. Category II includes the north-eastern region, Jammu and Kashmir and Lakshadweep, while category III represents places such as Coimbatore, Kochi and Pune.
Airlines have to deploy in category II regions at least 10% of their capacity deployed on the most profitable routes, and at least 50% in the category III routes.
But airlines have the option of buying seats from other operators to provide the prescribed service, with permission from the aviation regulator, the directorate general of civil aviation (DGCA).
“It is not unusual for airlines to buy or sell...for complying with the rules. Even we bought seats once when we fell short of numbers to comply with the rule,” said IndiGo’s chief executive Bruce Ashby. “But now we have a small surplus. I am not sure whether we can sell to any airline at this point of time.”
Even state-run National Aviation Co. of India Ltd, which had excess seats to sell as it is mandated to fly to smaller regions, now says it won’t be able to enter into such agreements.
One other option before GoAir is to buy seats at a premium from full-fare carrier Kingfisher Airlines, India’s second largest private airline.
“If we sell to them, it will be on the commercial terms set by us. Certainly, this will be at much higher rate as we are incurring huge losses on these routes,”said a senior executive at Kingfisher Airlines Ltd, who requested anonymity.
It is unclear how quickly DGCA will act on this issue and what it will ask GoAir to do. It can potentially even cancel the operating licence of an airline for non-compliance.
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First Published: Thu, Jul 24 2008. 09 03 AM IST
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