When it was reported recently that air travel is set to become cheaper than a railway journey, many dismissed the news as a flight of fancy. But this may soon be a reality in India. A clutch of low-cost no-frills airlines is promising to open the skies to the Indian masses. First off the block was Air Deccan, which began operations between second-rung cities in August 2003. This week it will start flying among the busy metros of Delhi, Mumbai, Chennai and Bangalore at fares starting at an unbelievable Rs 700.

More are waiting in the wings (see graphic). The average airfare of these no-frills airlines is 30-50 per cent lower than the regular fare. "We will target the big price-sensitive travellers to the Gulf, West Asia and south-east Asia," says V. Thulasidas, CMD of Air-India which is launching a low-cost airline called Air-India Express next year.

Just a year ago things didn't seem so exciting. When Air Deccan CEO G.R. Gopinath launched his low-cost airline in August 2003, the industry welcomed the newcomer with derision. With an equity base of a piffling Rs 30 crore, Gopinath had dared to enter the deep-pocketed business of flying. Air Deccan claims to have plans to grow from one small aircraft and two flights a day to almost 100 flights a day from 50 airports.

The Government's response, though, is still punctured by caution. "I am all for low-cost airlines but I want serious players to get into the business to ensure the health of the industry," says Union Civil Aviation Minister Praful Patel. And incumbents are not willing to concede any praise. "Low-cost operations may not work as two-thirds of operational costs in India can be reduced only marginally," says Jet Airways CEO Wolfgang Prock-Schauer.

SKY WARRIORS

DECCAN AVIATION Carrier: Air Deccan Launch: Already flew to smaller cities; started metros last month. Investment: Rs 150 crore. "Millions of railway travellers will happily upgrade and expand the market." G.R. Gopinath, CEO, Air Deccan

UB GROUP Carrier: Kingfisher Airlines Launch: March 2005 Investment: Rs 150 crore "The Government will have to distribute airport infrastructure fairly and equitably." Vijay Mallya, Chairman, UB Group

AIR-INDIA Carrier: Air-India Express Launch: Mid 2005 Investment: Rs 100 crore in the first year. "We are responding to the market needs. Low-cost airlines are the order of the day." V. Thulasidas, CMD, Air-India

WADIA GROUP Carrier: Go Launch: The group has applied for a licence to launch a low-cost airline. The launch is planned for mid 2005. Investment: Not available. Nusli Wadia, Chairman

But the existing airlines' reactions tell a different story. Days before Air Deccan was to start its flights from metros, Air Sahara, Jet Airways and Indian Airlines announced new attractive tariffs. Air Sahara unveiled its SurPrice apex fare offer under which a Delhi-Mumbai-Delhi ticket costs just Rs 4,444 against the normal one-way fare of Rs 6,445. Similarly, Indian Airlines started a Metro-non-Metro scheme in which if one flew between two metros, a connecting flight to a mini-metro would cost only Rs 1,000.

This may be just the beginning of a price war. Says Air Sahara President Rono J. Dutta: "There is tremendous scope for lowering costs. We want to be a low-cost, high-quality airline."

How can small airlines offer such discounted rates? The answer: By a combination of cost cutting and new revenue sources. No-frills carriers offer minimal in-flight service (many may not serve food). There will be faster turnaround at airports, which means better utilisation of aircraft. Advertising on aircraft and inside will generate additional revenues. More economy seats increase passenger capacity by 25 per cent and online ticketing will save on commission to agents. The outsourcing of maintenance also reduces costs. The unbelievable fare of Rs 700 is based on what is globally called dynamic pricing. Booking begins at least three months in advance. The earlier one books, the cheaper the ticket is. A Delhi-Bangalore ticket normally costs Rs 10,300. But through dynamic pricing, Air Deccan will offer tickets at Rs 700-8,000. As seats get filled up, the price band moves up.

PRAFUL PATEL

The Union civil aviation minister on the key issues facing the civil aviation sector: ON LOW-COST AIRLINES: "I am all for them but I don't want frivolous players to spoil the market. As minister, the health of the civil aviation industry is of concern to me." ON POOR AIRPORT FACILITIES: "We don't have airport infrastructure to support the kind of demand that low-cost airlines will generate. We don't have enough parking bays for aircraft and ticketing counters." ON INTERNATIONAL FLIGHTS: "Domestic carriers will eventually be allowed to fly overseas but in a phased manner. They fly to Colombo and Nepal now. ASEAN will be next."

More unique than the pricing is the ticketing system. Bypassing the agent-based reservation system used by most airlines (which adds 5-10 per cent to the cost), low-cost carriers like Malaysia's Air Asia and now Air Deccan have Internet-based reservation systems. An Air Deccan customer has the option of booking online or through a 24-hour toll-free telephone line. Online customers can pay through their credit cards and present the receipt printout along with a photo identity card at the airport to collect their boarding pass. Tickets can also be booked through a travel agent but will cost more because of the agent's commission.

With airfares in India among the highest in the world, low-cost carriers hold out tremendous potential here. Venture funds expect annual air traffic of 15 million to zoom with their entry. Nearly 15 million passengers travel by rail every day. Of these, some 3,00,000 are travelling by first- or second-class ac. "Most of these upper class travellers can easily fly if airfares are brought down," says Gopinath.

But infrastructure bottlenecks and policy guidelines may turn out to be party poopers. For one, the withholding tax on leased aircraft proposed in this year's budget will hit low-cost carriers because most of them lease rather than own aircraft. Secondly, despite the high charges, airport infrastructure is in a shambles in India. "We are looking at upgrading at least 20 airports across India," says Patel. Ensuring adherance to maintenance and safety norms will also be crucial.

So far, political interference has thwarted any move to modernise the sector. Hopefully, the UPA Government, which came to power with the slogan "Congress ka haath, aam admi ke saath" will not spoil the Indian middle classes' opportunity to take wings.