The Hindu Business Line : Low-cost airlines: They may need more than a wing and a prayer

Budget carriers abroad have several weapons to cut their costs; but Indian carriers have access only to a few of these. Budget airlines abroad cut operating costs by dispensing with expensive in-flight services.

The slew of low-cost carriers will need more than a market that is brimming with potential, to make it in India.

THE number of low-cost airlines that plan to take to Indian skies has swelled from four to a dozen in a matter of months.

Low-cost airlines have stormed the bastions in the US and Europe. To entrepreneurs who have seen their success, a country of a billion price-conscious consumers probably seems ripe for the picking.

The sharp takeoff in passenger traffic after the entry of the first budget carrier, Air Deccan, is also proof that cheaper tickets can persuade millions of Indians to take to the air.

But the slew of low-cost carriers will need more than a market that is brimming with potential, to make it in India. As marketers in businesses ranging from mobile phones to consumer goods have discovered, strategies and business models transplanted straight from the West seldom work in this marketplace. The airline business will be no different.

Budget carriers in the US and the Europe have several weapons in their armoury to hack away at their costs; but Indian carriers have access only to a few of these. Budget airlines abroad cut operating costs by dispensing with expensive in-flight services such as hot meals, drinks and other frills; this also means a leaner cabin crew and much lower staff costs. They protect their profits from unpredictable swings in jet fuel prices by entering into long-term hedging contracts. Finally, they cut down distribution costs by bypassing travel agents, and sticking entirely to online booking of tickets.

In India, low-cost carriers are free to cut costs on in-flight services, cabin crew and salaries; but they cannot do much about fuel prices.

Airlines here source fuel exclusively from the oil companies and have no say in prices fixed by the latter.

With several restrictions on hedging in petroleum products, they also do not have the means to guard against a sudden spike in fuel prices. Yet, fuel, rather than staff cost, is the largest cost element for airlines operating here.

Mimicking the online distribution system used by low-cost carriers in the US and the Europe, also may not be enough for airlines operating in India. So far, an online ticketing system has worked quite well for Air Deccan, the pioneering low-cost carrier.

But with the substantial new capacities being created, the population of air travellers has to expand manifold to fill up the planes.

Given the relatively low levels of Internet penetration in India and the misgivings about transacting via the Net, low-cost carriers may have to supplement online bookings with other distribution channels that can reach out to a larger proportion of the travelling population.

This too, may have a bearing on costs. Infrastructure in India is also not yet geared to the low-cost model.

Elsewhere in the world, low-cost airlines have garnered a big share of traffic by connecting profitable short-haul routes.

When plying to metros, they avoid the congested airport hubs and operate out of smaller secondary airports. This brings in considerable cost savings.

Aircraft spend minimal time waiting for landing slots and turnaround; and the airlines pay lower landing and navigation charges.

On the other hand, in India, low-cost carriers that want to stay out of the congested hubs do not have too many choices. Very few of the large cities have a second airport.

Even if new airports come up well outside the city, passengers may have to brave long commutes to get to the airport. This could reduce the attraction of boarding a plane to get to a nearby town.

Some of the constraints on the low-cost model can, no doubt, be eased by regulatory changes and the development of airport infrastructure.

But this alone will not be enough. Budget carriers in India will have to evolve a unique business model of their own and this can happen only through trial and error.

All this does not mean that low-cost carriers will not take off in the Indian context.

It only means that there are unlikely to be any overnight successes among the scores of airlines now busy shopping for aircraft, in preparation for a low-cost foray.

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