Thursday, October 16, 2008


Phufff......... what news about the aviation sector in the last few days???!!!!

Jet Airways laying off 1900 employees. King Fisher will lay off in the near future. Air India asks 15000 employees to opt for voluntary 3 - 5 years unpaid leave. Spice Jet cuts fares for advance bookings by 15%. Paramount is giving half page advertisements in the newspaper about flights to Ahmedabad from all major regional South Indian cities, via Chennai. King Fisher sells off 3 A340s to Nigerian Airways, defers other orders. It is learnt that Spice Jet is handing over only one way tickets to the expat pilots going home, as per terms of contract, having laid off 30 pilots some time back. Praful Patel wants to bale out the private airlines with some sops - Petroleum and Finance Minister not playing ball. Vijay Mallya is looking for a Rs. 5000 crore interest free loan for 2 years for the airlines. Couple of days back Gopinath had volunteered to buy back and run Air Deccan again. He backed off yesterday, after meeting with Dr. Mallya. So, what does all this mean?

Well only one thing: that the aviation sector which did a vertical take-off a few years ago is ready for a crash landing - and also that I do not need to be an astrologer to forecast this. Are there any options in these troubled times for the global economy in general, and the global airline industry in particular - an industry that can only thrive in times of excess discretionary surpluses with businesses and individuals. This seems very distant in the present context. Will the low cost airlines survive or would they be consumed in the Jet-King Fisher tie-up?

As per me, low cost in India can only survive if they cut costs and reduce ticket prices, as we Indians are very value conscious. Revenues will only increase if the Indian traveller sees value in travelling by air. Time is still not a premium resource for most of us, as yet. I believe we would pay about 1.5 times of the AC-2 tier fare to travel by air if it cuts the journey time substantially - like say Chennai - Delhi. Otherwise we would plan to travel by Rajdhani Express. How do the low cost carriers cut costs? Maybe switch to ATRs with seating of 45 - 70 seats and hop across doing Chennai - Delhi, via Hyderabad, Nagpur and Bhopal (depending on market survey, of course). I do believe that Tier 2 and 3 cities can provide number of seats per day to any metro city.

We cannot replicate the North American model in India. India has a very large rail network which is reasonably well served, unlike North America. Indians are very value conscious, unlike the Americans. The low cost airline target customers are the ones travelling by AC-2 tier, and maybe AC-3 tier - stretching things a bit here though. I am a great fan of the low cost model - a model that gave an opportunity to ordinary Indians to travel by air, a model that broke the hierarchical structure of Indian society by selling tickets for ridiculous prices. I want the low cost model to survive this down turn. How???????

Any ideas any one??


L. Venkata Subramaniam said...

I wonder how low they can go with the prices? You are right they will only survive if they cut costs and reduce ticket prices.

But havent they tried the low ticket prices already? I think they were still running huge losses with low ticket/almost 70% full model. Or am I missing something there?

Now I think you are the expert on how they can work on the costs. I am not sure how they can achieve that. ATRs is fine but often the airports are located outside the cities and taxi costs and time costs add up too.

Do you think we will ever have it as good as we did till last year?

J P Joshi said...

No, we will never have it as good as in the previous years, that is for sure. Everything hit at the same time - slowdown, high fuel prices, job losses, financial insecurity due to dropping asset prices, etc. This actually hurts discretionary spending, like air travel, the most. I had written about the low cost model earlier at:

I believe, we are too value conscious and want world class facilities but are not yet ready to pay world class prices. Airlines are now trying to carry as much cargo as possible and are busy tying up with courier companies for airport to airport delivery. New models are being discovered everyday - that is the good part of competition. I do hope that the low cost airlines can survive this downturn.