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For decades, air travel in India was meant for the most elite and powerful in society. An overwhelming majority of travellers who could not afford the prohibitive air travel fares, preferred to journey on trains and buses.
The revolutionizing effects of liberalization swept India with dynamic changes in the aviation sector. From being a service that few could afford, the sector has now graduated to being a fiercely competitive industry with the presence of a number of private and public airlines and several consumer-oriented offerings. In ten years of competition in the aviation sector, private airlines have changed the rules of the game, and they now account for more than 60 % of the domestic aviation market.
More and more middle class families in India now prefer air travel to the more traditional travel by train. In 2003, 10 million Indians travelled by air domestically. In 2004, 25 million took to the skies within India and 6 million Indians travelled abroad.
The Centre for Asia Pacific Aviation estimates that the domestic Indian market will add 5 million passengers every year for the next five years, growing to 45 million passengers by 2010.
Today, the relationship of domestic to international travel stands at 40:60 whereas in 1994 it stood at only 25:75. But taking into account a growing middle class with increased and increasing purchasing power, there are 200-210 million potential spenders. The Indian population grows at a rate of 8% per year.
Around 100 million travellers every day on state-owned Indian Railways, If air travel bites into even a small percentage of this huge pie, that’s still clearly a tremendous growth opportunity.
The entry of budget airlines like Air Deccan, the introduction of cheap airfares by other domestic carriers, combined with rising incomes and consumption of the middle class as also their growing aspirations, have created this new paradigm: Air travel is no longer for the elite.
Air Travel Market
The new entrants have caused a shift in the market share for the old hands. The three legacy airlines, Jet Airways, state-owned Indian and Air Sahara, saw their market share slipping in first quarter of this year.
Jet Airways, still the leader, found its share of market volumes slipping with 34.9%. Indian at 23.9% and Air Deccan at 10% followed suit. Low-cost airlines are certainly giving a tough time to full service carriers whose market share has dipped, as has their revenue. Fares have been slashed drastically and both Jet Airways and Indian are wooing the consumers with special schemes and promotions.
Several new entrants such as Air Deccan, SpiceJet, GoAir, Kingfisher and Paramount have begun to dot Indian airspace, garnering a market share of more than 31% in the first quarter of 2006. The leader among this brat-pack is clearly Air Deccan – the airline has doubled its market share to 15.2 per cent. Kingfisher and SpiceJet have captured a market share of 8.3 per cent and 6 per cent respectively.
Coimbatore-based Paramount Airways has publicly confirmed garnering 0.3% of the market. Jeh Wadia’s GoAir is also going great guns by cornering 1.6% of the air traffic in a short time span. These airlines took to the skies after the first quarter of last year.
All the airlines have seen an increase in the number of passengers carried in the first quarter.
With all the start-ups planning significant increases in capacity this year — Kingfisher (fleet may go up to 20 planes), Deccan (38 planes), SpiceJet (12/14 planes), Go (7/9 planes) and Paramount (10 planes) — the market is set to sizzle.
The market is gearing up for an adventurous ride of price wars as six more low-budget airlines waiting in the wings - Jagson Airlines, King Air, Mega Airways, Indus Air and Megapode Airline. IndiGo has made its entry as well, with ambitious plans to induct 100 aircraft into its fleet.
According to analysts, airfares will continue to nosedive, as nearly 200 new aircraft will be added to the existing 250 aircraft in the country. All this translates to further downward revision of fares and packaged offers for passengers.
The Low Cost Model: A popular mantra
Air Deccan triggered the race to the bottom in the low cost sector. Their model forced the industry to move from having simple economy, business and first class fares, to multiple slab tariffs such as apex fares, internet auctions, special discounts, bulk purchases and last day fares. Some of the tariffs offered are so low that they have brought airline fares neck-to-neck with upper class railway fares. This low cost model is two-fold: offering connectivity between smaller cities and major metros and making air travel a feasible option to a new class of passengers. The features and benefits of the model are listed in the table below:
Features
Benefits
Ticketless travel & Online ticket sales
Reduction of huge costs of printing
No international offices
and processing tickets.
Use of secondary city airports
Lower landing and parking costs in
No frequent flyer points
secondary city airports
No free food & beverages/in-flight magazines
High seat capacity due to nil storage of food
No club lounges
Minimal training (of pilots) and
Same aircraft types
maintenance (of spares for different types of aircrafts) costs.
Separate ticket for each sector/flight
No premium class
Short haul flights
Quicker turnaround and higher aircraft utilization
Growth: Indian Travel is on a roll…here’s why
In India, travel and tourism activity is expected to grow by 8.0% per annum in real terms between 2007 and 2016.
As per World Travel and Tourism Council (WTTC), India will emerge as the second-fastest growing tourism economy globally between 2005 and 2014, second only to by China. Successful promotions such as the Tourism Ministry's hit "Incredible India" multimedia campaign and the budget air travel boom are reckoned to have contributed to the tourism gold rush.
Summary:
Indian Skies are experiencing a new dawn:
Rising income and consumer confidence in key markets-personal travel demand on an increase
Travel liberalization gathering pace
Leisure travel increasingly more affordable
Low Cost Carriers are reshaping air travel, leading to regional liberalization
Branded hotels with air routes have discovered India in exotic places like Goa and the North East
Airport privatisation of Mumbai and Delhi progress and confidence develops in creating tourism infrastructure
Challenges and constraints still persist:
India is a very cost conscious society, hence market is very sensitive to air fares
Internet based solutions limited-Bandwidth restrictions and low internet penetration
Changing needs of the business traveller puts more pressure on the travel agents to offer wide variety
Travel agents still the first choice for air bookings
While aviation is centrally managed, the regional structure of India’s government and regulations, combined with the often regional management of airline companies, has created a fragmented market for corporate travel.
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Developing India-centric content for a new web portal targeted at NRIs
