LOW COST Airlines - Ready for Takeoff in India

            

Authors


Authors: Sanjib Dutta
Senior Faculty Member
ICMR (IBS Center for Management Research).



<< Previous


India Contd...

Not withstanding the infrastructural bottlenecks, the low cost model is here to stay. However, not all will be able to fly on the truck routes. Depending on their financial strengths, and business plans, some will make a dent in the trunk routes while others will try to make an inroad on Class A and B towns. Air Deccan will have the first mover advantage and try to capture the market shares of the full service airlines on the truck routes. Says, Gopinath, "We don't want to be a regional airline. We want to be known as a national airline, going to the regions. If you want to be a major player, you have to be a national player."

The low cost airline model will see lot of action in the coming months. The intensity of rivalry is expected to be very high with the entry of so many players. Virgin Blue, the low cost challenger to Australia's national carrier, Qantas, is planning to invest in a low cost airline in India. Said David Huttner, Virgin Blue's head of strategy and communication, "I hope you guys quickly finalise your aviation policy before we sign up with someone in China."

The initial success of Air Deccan is already attracting imitators. Analysts feel that there may be a situation where too many players will compete in the same price segment leading to an intense price war. This is exactly what happened to Ryanair and Easy Jet in Europe. According to Nirmalya Kumar, professor of marketing at the London Business School, "to attract customers, they are cutting prices to unreasonable levels, impacting the profitability of the entire sector."

Filler
What is a low-cost airline?

A low-cost airline usually doesn't issue tickets in physical form to travellers. Travellers book their tickets online and get a booking number. They need to quote this number at check-in point and produce their identity card to get boarding pass. This reduces huge costs of printing and processing tickets. The low-cost airline does not issue common tickets for connecting flights. People have to book a separate ticket for each flight. No food or beverages are offered free to travelers. They have to buy food from the staff. This enables airlines to reduce the space allotted for storing food and add more seats in the space. Also, no magazines are offered free for entertainment. All the seats in an aircraft belong to the same class. There is no division called business class and economy class. The flight also does not have any lounge. Frequent travellers do not earn any points and the airline does not offer any special benefits to them. Moreover, low-cost airlines use secondary airports that allow them to avail lower landing and parking costs. They maintain same type of aircrafts in their fleet so as to minimize training (of pilots) and maintenance (of spares for different types of aircrafts) costs. The airlines seek to make additional revenue by printing advertisements on items like head-rest covers. The seat pitch (the distance between the headrest on one seat and the one on the seat in front, when both seats are inclined in the same angle) in low-cost airlines is less thus accommodating more seats in the aircraft. Different low-cost airlines have a different combination of the above mentioned features. Especially, the low-cost airlines launched by full service airlines to prevent customers from switching to other low-cost airlines have very few of these features.

Source: ICMR (IBS Center for Management Research).