Monday, July 24, 2017

Low-cost flying in for the long haul

New Delhi: Barely hours after the Union Cabinet gave an in-principle approval to national carrier Air India’s strategic disinvestment late last month, India’s biggest low-cost airline IndiGo jumped into the fray showing interest in taking over the debt-laden, loss-making airline.

However, at the heart of IndiGo’s interest lies its strategy to start long-haul international operations replicating a successful low-cost model which the airline follows on domestic routes. The airline’s promoters made it clear — the plan is to start long-haul international operations, with or without Air India.

In May, another interesting development in the aviation space unfolded when low-cost airline SpiceJet’s chairman and managing director Ajay Singh said he planned to introduce a direct Delhi-London flight at ₹30,000 for a round trip. The fare quoted by Mr. Singh was much lower than ₹40,000-₹45,000 a ticket being offered by other airlines on this popular route. He said the airline woud look at unbundling services such as food, beverage and Wi-Fi from the fare component, essentially sticking to a low-cost model on a longer duration international flight.

The difference between a low-cost and a full-service carrier is simple. Low-cost airlines sell only the core product i.e. a seat to travel from one point to another to the passenger as a part of the airfare and passengers need to pay separately for the frills. Full-service airlines offer passengers a host of value added services, including in-flight meals, free beverages, and lounge for frequent fliers, among others but generally at a higher fare as these elements are packaged together.
In India, the market share of low-cost airlines such as IndiGo, SpiceJet and GoAir has expanded from about 24% in 2006-07 to 65% in 2015-16 compared with full-service airlines such as Jet Airways and Air India.

The compounded annual growth rate (CAGR) of 11.7% of low-cost airlines in the nine-year period compared with an 8% dip for full-service airlines shows that the former now occupied the imagination of the Indian flyer.

But can the magic of a low-cost model in flightsof between one and three hours duration be replicated on a 10-12 hour journey on international flights?
23/07/17 Somesh Jha/The Hindu