LOW COST Airlines - Ready for Takeoff in India
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Authors
Authors: Sanjib Dutta
Senior Faculty Member
ICMR (IBS Center for Management Research).
Links
Tools
India Contd...
Exhibit I
No Frills Model
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Ticketless travel. Online ticket sales. |
Source: The Financial Express, July 31, 2003
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The marketing focus of low cost airlines is different from that of high cost, full-service airlines. The positioning of full-service airlines has always been based on safety, reliability, network strength and service. Whereas in the case of low cost airlines its purely price or value. Some airlines such as the Kingfisher Airline are hoping to pull traffic on the basis of brand experience. These airlines do aggressive advertising through hoardings, newspapers ads and word of mouth publicity and all these translate into hits on the website. The use of Internet for ticketing and reservation has brought down the transaction cost to the minimum. Air Deccan has a 24-hour call center with local numbers for each region. The call center is linked by a Virtual Private Network (VPN) on the Internet to the reservation system. The reservation system in turn in linked through a VPN to the Citibank terminal for payments. In the case of traditional full-service airlines, the transaction cost has been very high because of the traditional reservation systems, travel agents, and network providers. Low cost airlines can pass on the benefits from cost savings to the travelers by quoting low prices. |
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To answer the question: how attractive is the low cost model in India? We have to study the following figures. In a country with population well over one billion, only 12 million travel by air every year whereas in the US which has a population of one-fourth of that of India, 3 million people travel by air everyday. On an average the daily flights in India is only 400 whereas in the US it is 40,000. Ryanair carries 25 million people in a year but its market share is still less than 5 percent. Coming closer home, in Malaysia, around 12 million people fly every year. India has a middle class population of 200 million and even if only one fourth of that can afford to travel by air, it's a huge number. With many low cost airlines getting ready to launch their services on a big scale in the Indian sky, the domestic customers are about to experience great flying at an affordable price. Some of the innovations in low cost air travel which are going to happen very soon include, in-seat video on demand, shopping on board, auctions and loyalty programs.
The biggest hurdle to the growth of low cost model in India is the absence of a transparent aviation policy and poor airport infrastructure. In the US and Europe, low cost airlines shave off costs by avoiding mainland airports where parking and landing fees are high. A low cost airline in Europe, instead of using Heathrow in London uses secondary airports such as Luton or Stansted. There are very few secondary airports in India. Though the Naresh Chandra Committee has suggested lower landing and parking charges for cost lost airlines in India, but using the mainland airports would result in increasing congestion and cause flight delays.
World over, as lost cost airlines are spreading their wings, the airport authorities are also competing fiercely to attract these airlines to use their airport infrastructure. However, the picture is different in India. There are 400 airstrips and airfields in India but only 62 are operational. According to the Naresh Chandra Committee report, A Roadmap for the Civil Aviation Sector, "Barring a few airports, available infrastructure is under-utilised. There is a large number of airports where full infrastructure is available, but only operate one to two flights a day."13
13] Plain Travel, feBusiness Traveller, November, 2003.