Air Asia is the latest international low cost carrier in India to bite the tarmac dust in major cities. Air Asia has announced that it will terminate operations out of Mumbai and Delhi by March this year. This follows a long list of low cost carriers over the last few years to jump onto the Great Indian Growth Story, and pull out almost as soon as they fly in!

Jetstar Asia was the first in the list. Flying in from Singapore into Kolkata and Bangalore, they terminated operations before they finished even a year of flying. Tiger Airways followed with a few cities, but had to pull out of some of them, notably Bangalore. Nok Air flew into and out of Bangalore. And now, Air Asia adds Mumbai and Delhi to Hyderabad and Trivandrum to the list of cities it has pulled out of. The only success tasted by international LCCs is to the Gulf, and to Singapore and Kuala Lumpur from cities like Chennai and Trichy.

Most of the routes where the LCCs survive on are the ones with huge labour or trader content. So while the LCC route planner was planning to send more and more planes into India, he is instead pulling these planes out of India before they bleed more red. But full service carriers are waiting in line to add more flights into India!

Some of the reasons mentioned for the failure of LCCs were lack of brand awareness, Web site-only bookings and lack of engagement with the travel agent. Possible, but these factors don't explain how an Air Asia can pull out of three metros in India and still fly to Trichy!

Market Segments

LCCs need a steady flow of a particular market segment in order to survive on a particular route. It's very rare for LCCs to survive on business traffic, so most LCCs induce leisure travellers to fly on them, even if they hadn't planned a holiday! The other segment LCCs target is the Visiting Friends and Relatives (VFR) traffic.

The routes where LCCs survive in India, however, are mainly dominated by labour and the Burma Bazaar trader content, and a few routes such as Kerala-Gulf and Chennai-Singapore where there is a bit of VFR traffic.

Can LCCs hub? The very model of an LCC prevents it from hubbing, because this would mean schedules in the hub have to be tweaked to cater for connections from various points. For example, if Air Asia hubbed in Kuala Lumpur and operated a KL-Hong Kong flight, the flight would need to be timed to connect to the Chennai-KL flight, the Hyderabad-KL flight and so on. This would mean more time for the aircraft on ground and an inefficient schedule, something that a low cost carrier can't afford.

Airport costs

Airport costs also partially contributed to the demise of these LCCs. Airports in India are monopolies, and they behave like monopolies! A passenger flying out of Hyderabad airport today pays an airport tax of Rs 1, 875. Delhi Airport charges Rs 1,431. Rs 1,875 for Hyderabad airport compared to Rs 1,225 out of Singapore and Rs 800 out of Hong Kong! It's Rs 630 if you fly out of Singapore's low cost terminal. I've never flown out of there but images from the Web show that it's as good as Hyderabad Airport.

The Indian government charges an additional Rs 773 as service fee (anything which the middle class and above have to buy falls under this bracket) and Rs 221 as Passenger Service Fee. So the total is Rs 2,869. Today, I can buy a Tiger Airways ticket from Hong Kong to Singapore for Rs 2,770 including all taxes. And that's how low cost carriers survive – By catering to the mass market, by inducing travel. They need the Indian traveller to say “Rs 2,770 to Singapore from Bangalore? I'd rather go to Singapore for a weekend than to Mysore!”

But, given the Great Indian Middle Class and the disposable income and all the other factors mentioned in those research reports, isn't this small change? If someone has to fly, won't he pay the airport taxes and just fly?

The key lies in the phrase “has to fly” – LCCs create a new market segment and induce new demand, and cater to passengers who probably never thought of flying on a holiday.

Outbound statistics show that about 10 million passengers travel out of India annually. If you compare that 10 million to the 160 million number of the Great Indian Middle Class (Rs 3-17 lakh of annual income) – it's still low. And remember the 10 million includes business travel, labour, students and people visiting their friends and relatives overseas.

Today, India has around 117 million airplane seats buzzing around every year in the skies. As a percentage, that is 0.1 seats for each of the 1.2 billion population. In contrast, the US has 3.5 seats a person.

Will India show this kind of behaviour or reach the kind of levels of travel seen in the US or Hong Kong? Of course, as the economy matures into spending more on luxuries, and as more seats are added into India by the regular carriers and prices fall even more, things will change. When the governments and airports realise that they need to spur demand and not milk the existing market, things may change.

But till then, international LCCs simply have to stay out of India.

(The author is a Bangalore-based writer and freelance aviation consultant.)

Related Topics
comment COMMENT NOW