Low Cost Airlines Vs. Indian Railways: Heating Competition, Melting Prices

The continuing fare tussle between the Railways and the Low-cost airlines has changed the contemporary scenario for the Indian traveller. A ticket on India’s low-cost carrier (LCC) has made flying, once confined to the rich and elite, an affordable reality for the hordes of Indians travelling across the country.

It has taken some time for the low-cost airline industry to carve a niche for themselves, but the wallet-friendly LCCs are here to stay.

When Air Deccan introduced airfares almost equalling the AC II-tier train fares, the response from the leading domestic airlines like Indian Airlines, Jet Airways and Sahara Airlines was immediate. Slashed rates and Advanced Purchase schemes (Apex) swiftly began to take shape, resulting upto 30 to 40 per cent slashed fares compared with the original prices.

Barely a year after Air Deccan took off came the launch of Vijay Mallya’s Kingfisher Airlines, followed by SpiceJet and GoAir. Today the number of LCC’s has multiplied from three to a dozen in a matter of months. Since the entry barriers are low, players such as Paramount, IndiGO (Interglobe), Yamuna Air or Kerala Airways, have already filed flight plans.

Continuing a steady progress, LCC’s are slowly eating into the aviation market share, capturing almost one third of the total market.

However the dip in market share does not necessarily mean a drop in the number of passengers or revenues for the mainstream airlines, as the size of the air travel segment has also been increasing. In the market driven by the LCCs- with about half of the passengers being first-time air travellers, there’s a bigger pie for everyone.

But the biggest loser so far has been Indian Airlines. Even with its trendy make over called Indian, it has been left with a market share of only 23.88 per cent while the potential Jet-Sahara combine controls 45 per cent.

As a result it is now exploring the possibility of floating a subsidiary for low-cost operations by merging Air-India Express, the low-fare arm of A-I with Alliance Air, the decade-old wholly-owned subsidiary of IA servicing tier II cities. This could mean that India would have its first-ever LCC, having both domestic and international operations.

However this fairy tale of low cost airline advent is still in its initial stages.

In Europe, North America and Australasia, most successful low cost airlines have operated primarily in domestic, or unrestricted international markets. The LCCs in India on the other hand, have to operate in a highly regulated domestic environment. This is likely to get compounded with the surge in aviation fuel prices over the past year and the plummeting infrastructure with congestion in airports, lack of landing facilities and parking slots, and increasing staff costs driven by internal competition.

These non-frill LCCs are characterised by few on-board services and elimination of catering. But for the Indian travellers accustomed to travelling in the crowded trains for long hours, the aggressive tariff structure by the LCCs, costing nominally higher than the AC II-tier by train, is becoming a popular alternative.

With the LCCs now targeting the middle-class travellers, the Indian skies are slowly but surely opening up to the one billion plus Indian population.

Copyright (C) Manoj Gursahani

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