The Hindu Business Line : Public sector competition coming for low-cost airlines

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New Delhi March 1 Private sector low-cost domestic and international airlines could soon face competition from the newly merged Air India and Indian.

The Government is considering a proposal to create a low-cost airline arm of the proposed merged entity to operate regular flights not only within the country but also to international destinations.

"The suggestion being examined by the Government is to have one low-cost airline to operate on both international and domestic routes and another full service airline. At present there are four state-owned airlines in the field — Air India, Indian, Air India Express and Alliance Air. But when the merger process is completed, the number of airlines will be reduced to two," sources told Business Line.

At present Indian, which mainly operates domestic flights, does not have a low-cost arm. Its 100 per cent subsidiary, Alliance Air, operates on feeder routes and has a lower operating cost as compared to Indian, mainly because as most of its staff are employed on contractual basis.

Similarly, while Air India operates full service flights to international destinations, its 100 per cent subsidiary, Air India Express operates only to the Far East and West Asia at fares that are almost 25 per cent lower than existing market fare.

While there are at least three low-cost domestic airlines including IndiGo, SpiceJet and Air Deccan, a number of low-cost international airlines including Jazeera Airways operate from the global points to India.

The decision to set up a low-cost airline to offer flights domestically and internationally forms part of the plan to have five strategic business units. These include one entity to look after maintenance, repair and overhaul facility, another for cargo and the third for ground handling services. In addition, there would also be two units to look after the passenger transportation business including a low cost airline arm.

The merger, already cleared by the Group of Ministers, was today approved by the Union Cabinet. Sources indicated that the merger is likely to get underway from April 1 this year and the merged entity would have a combined fleet strength of 111 new aircraft by 2010.

The name of the merged entity and where its headquarters will be located are yet to be firmed up. The merger process is to be completed within 18 months from the time of the Cabinet nod.

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