The Hindu Business Line : As low-cost airlines take off...<br> Asian skies readying for the dog fight

THE skies above South and South-East Asia are readying for a dog fight. In India, low-cost carriers or LCCs (the no-frills airlines, that is) seem to be taking off in their droves, thanks to the government liberalising the aviation sector long dominated by the national carriers.

Air Deccan, the country's first and so far the only LCC, has launched its services, while the second LCC, Airone Feeder Airline Pvt Ltd, is to start operation soon. Crescent Air, a third LCC, proposes to operate feeder cargo services to domestic destinations connecting the metros. Even the West Bengal Government is believed to have started looking around for a local version of Air Deccan to promote regional air travel and has accordingly urged the Centre to revive a number of airstrips in the State.

It may be noted that the Delhi-based Summit Aviation had earlier showed interest in running low-cost services in the eastern and north-eastern regions. Some of the existing regional airlines (for example, Jagsons) too are gearing themselves up to meet the challenge thrown up by the new aviation policy by offering lower fare than what is currently being charged on several routes from Delhi.

The national carriers Indian Airlines or Air India, despite their domination of the Indian skies, do not seem to be much interested in operating low-cost services. Understandably so. IA's experiment with Vayudoot has not been something to crow about. AI is yet to take a firm view on it as it is awaiting the report of the special committee set up under Mr N. Vaghul, ICICI Chairman, for studying the issue. However, preliminary studies suggest that launching low-cost services may not be in the best interest of the airline.

It may be noted that several European and North American low-cost units of incumbent carriers have been problematic for their owners. Thus British Airways and KLM both tried but have since sold off — BA sold off GO and Deutsche BA, and KLM Buzz.

Meanwhile, Singapore Airlines proposes to launch a LCC subsidiary, Tiger Airways, from the second half of this year, only months after the scheduled launch of ValuAir set up by one of its former executives.

Two years ago, a discount carrier, Air Asia, was launched in Malaysia while Indonesia already has two fledging LCCs — Lion Air and Air Paradise. British tycoon Richard Branson is understood to have shown interest in setting up an LCC in Thailand in partnership with Thai Airways. According to one estimate, at least a dozen LCCs will take to the skies to exploit the potentials of affordable air travel by Asia's growing middle-class.

Budget airlines, it is estimated, will capture at least 25 per cent of Asia's air travel market within next 10 years and a lot of that will be new, not diverted, traffic.

Starting with South West Airlines of the US, most LCCs in Europe and America are believed to be growing at nearly 30 per cent. This is presumably because most of these airlines follow a business model based on point-to-point connection between cities and flying out of cheaper second airports.

True, the LCCs face a big revenue risk in their point-to-point services but they try to reduce it by offering low fares and flying full capacity. Their simple operation presupposes not keeping the expensive planes on the tarmac at a hub for long. Thus, LCCs in Europe and the US get 50 per cent more flying hours per day out of their aircraft than the conventional carriers. In Europe, according to one estimate, LCCs will grab half the European market by 2010, up from around 10 per cent at present. The success of EasyJet and RyanAir is a case in point. In America, the conventional wisdom has been that LCCs will remain at around 25 per cent of the market.

Interestingly, according to many aviation experts, the unstoppable ascent of the LCCs may hurt the conventional carriers less than might be expected. This is because the extra passengers of the LCCs , it is felt, will be coming from the new demand to be created by the low fares. The growth thus may not be entirely "stolen" from big flag carriers.

Meanwhile, there is an interesting development: The difference between the conventional carrier and the LCC model is starting to blur. The conventional carriers are learning from the LCCs to use the Internet booking to cut distribution cost. They also now imitate the LCCs' dynamic pricing policy — selling cheap seats early and raising the price as more and more seats get filled. At the same time some LCCs are embracing aspects of conventional carrier model.

AirTran (formerly the much derided ValueJet) and Jet Blue, two of the more enterprising young airlines of the US, are now offering separate business cabins. In fact, these two airlines along with South West Airline of the US, Air Asia of Malaysia, Cebu Pacific Air, a budget airline owned by the Philippines' conglomerate JG Summit Holdings Ins, and Crescent Air of India, all plan to extend their services beyond their national boundaries (in fact, some have already started flying across the border) and thus moving into a market dominated by national carriers.

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