Thursday, August 21, 2008

The Low Cost Airline 'Dream Ain't Over'

'The Dream Ain't Over' article published in the Times of India, written by Capt. G R Gopinath, on the editorial page is his expression of faith in the low cost model that he literally kick-started in India. It was a revolution that gave the ordinary Indian citizen a chance to fly, and by doing so break the 'caste structure' of the Indian system, where-in you could only fly if you had money or position. Air Deccan came as a breath of fresh air for the Indian public and gave them a chance to fly with ticket prices as low as Re. 1. It changed the aviation scene in India, specially when a number of other low cost carriers came into being, following the lead taken by Air Deccan. All rules regarding modes of transportation were re-written. The railways felt threatened....... and lowered fares for the Air Conditioned classes.
I am a big fan of Air Deccan and did not want Air Deccan to go down, simply because Air Deccan did to India, in its own way, what our Constitution has been trying to do for the last many decades - it broke through the rigid caste structure of our society. I believe that caste is so deeply ingrained in our society that it will take a long time to rid our society of this menace - I am speaking about the negative connotations of caste. It is events like the privatisation of the telecom sector, introduction of the mobile phone, opening the civil aviation sector to private players, the advent of low cost carriers like Air Deccan, privatisation of banks which led to easy access to loans for everyone, that have slowly and surely started eroding India's rigid caste system and has started flattening the Indian peoples hierarchical structures. More of this sometime later.
I donot want the low cost model dream to be over, but being in the industry I am also aware that if nothing is done to save it, we will loose this dream once again like the East West, Damania, Modiluft airlines. The airlines are all bleeding. Capt Gopinath has touched upon the high cost of fuel, the higher fares to generate revenue, poor infrastructure, and inflation.
The cost of fuel affects the whole world but affects India more because of our system. The cost of fuel is much higher in India than abroad. Can the government take some steps to rationalise the price of fuel or better still permit free import of fuel by private operators in a way that it helps the aviation industry - an industry that is providing employment to a large number of people directly, and many more indirectly through the infrastructure projects connected with aviation - be it construction, navigation equipment, signal equipment, training schools, and upgradation of allied facilities etc.
The article also talks about airlines trying to increase revenue through higher fares. This has led to a reduced load factor. The July figures released by DGCA indicate a load factor of about 60%. This is just not good enough to sustain the airlines. The Indian traveller is very 'value conscious' and is not willing to pay a very large premium for the 'time saved' due to air travel. Thus the fares can be hiked but not beyond a point, to keep the Indian traveller interested.
Poor infrastructure adds to the costs and the higher fares in the form of congestion charges. Private airports at Bangalore and Hyderabad have started charging higher airport fees and this is further going to affect air travel. The Indian traveller wants world class facilities but is not yet ready to pay world class prices. We will have to find a way to pay for the infrastructure that we create. Delhi's third runway was opened for air traffic today. This augurs well for the travellers. The orbit time would definitely reduce, saving fuel and hopefully bringing ticket prices lower for the public. We need more runways and low cost terminals to help the low cost airlines survive.
Inflation is another factor that is affecting every sector, including the aviation sector. Hopefully inflation would come down in about 6 months time and change the gloomy perception of the corporate sector and the other travelling public. Everyone seems to have cut down on discretionary travel and this definitely hurts the airline industry the most. The government needs to do its bit but there is a need for the industry also to shape up by cutting costs and increasing revenues. One thing that always struck me abroad was that every industry operates on the principle of 'co-operate to compete'. Every industry standardises things in such a way that they all benefit and compete on only their core business. The low cost carriers must co-operate in anything that does not directly reflect on customer service - it could be in providing transportation, security, baggage handling, etc. They could even work out load share agreements to cover all routes, specially unprofitable routes. 15 aircraft of one airline, 5 of another, few more of another - competing with each other would only kill all of them. These airline managements must think out of the box.
Lastly, like Capt. G R Gopinath, I do hope that the low cost dream 'ain't over' yet.

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