Aaruni Kant Sinha had logged on to the Air Deccan website and clicked on Bangalore as his destination when it suddenly showed the availability of a Re 1 ticket. Sinha rubbed his eyes in disbelief and scrambled to dial the call-to-buy phone line to block the ticket. The total ticket price-which included Rs 221 for airport taxes-was a chintzy Rs 222. "It felt like winning a lottery," laughs Sinha, a Delhi-based broadcast journalist, who now hopes to get lucky with the return ticket.

EXISTING PLAYERS

INDIAN AIRLINES GOVERNMENT OWNED Fleet: 62; Plans to add: 53 The national carrier is finally set to acquire new aircraft and may go public. JET AIRWAYS NARESH GOYAL Fleet: 45; Plans to add: 30 The market leader has the option of doubling its fleet in the next 10 years. AIR SAHARA SUBRATA ROY Fleet: 20; Plans to add: 0 The original price warrior is being forced to come with a new strategy.

Catching a flight was never this easy nor was it so cheap. Despite the high and rising costs of aviation turbine fuel (ATF) which take up 20 to 30 per cent of the cost of a ticket, the launch of two new budget airlines has seen ticket prices nosediving by 30 to 60 per cent on major sectors, not counting the growing flock of lucky fliers like Sinha.

There has never been a better time to catch a flight. Indians are hopping off trains and getting airborne like never before. Ajay Singh, director of low-frills Spicejet which started flying in May this year, estimates that over half his passengers are first time fliers. Captain G.R. Gopinath, whose Air Deccan introduced the concept of low cost carriers (LCCs) in the country, claims that up to 30 per cent of his passengers are flying for the first time.

They could be anyone like Manoj Kumar Goyal, the hardware dealer from Aligarh, who shuttles once a month from Delhi to sign deals for brass door fittings in Hyderabad and Bangalore. Earlier he would travel by train, now he can afford to fly. Or they could be like the Singals of Delhi who flew to Mumbai last week with two members of the family of five flying on Rs 500 tickets (see box: First Time Fliers).

THE EARLY BIRDS

AIR DECCAN G.R. GOPINATH Launch: August 2003 Current fleet: 20 Plans to add: 60 USP: Low, variable fare, no frills. Only economy class. Mix of metro and cross-country destinations. KINGFISHER VIJAY MALLYA Launch: May 2005 Current fleet: 2 Plans to add: 48 USP: Variable fare, all frills. Single Kingfisher class. Premium in-flight service. Only metro destinations. SPICEJET AJAY SINGH Launch: May 2005 Current Fleet: 3 Proposed Fleet: 20 USP: Low, variable fare, but not cheap quality service. Low frills, small complimentary snack.

While that is absurdly cheap, almost all LCCs are eyeing the vast pool of train and bus travellers as potential fliers rather than try to wean away passengers from Indian Airlines, Jet Airways or Air Sahara. "Existing travellers ranging from Volvo bus to railways ac-III tier should be able to travel by air. Not just once a year, but every time they need to travel," says Jeh Wadia, the elder son of Nusli Wadia and managing director of GoAir-the airline scheduled for launch in October 2005. Singh goes a step further. "Some 16 million people travel by train every day, compared to 15 million by air every year. This is what we should change. Why should someone spend 18 hours in a train when he can do the same journey in two hours?" he asks.

An ambitious statement no doubt, but the power of pricing is beyond doubt. One of the key reasons why the aviation boom of the mid-1990s-when 33 applications were filed for new airlines-turned into a bust was that every airline focused on high-end all-frill model and ended up feeding on each other to death in a small and stagnant market of air travellers. By luring first-time fliers, LCCs today are creating a new market (see graphic: Triple Treat for Fliers). And if the virtuous cycle of low fares, higher demand, increased capacity and low cost really takes a full circle, aviation can replicate the success of telecom.

ON THE LAUNCH PAD

PARAMOUNT M. THIAGARAJAN Launch: August 2005 Proposed fleet: 5 USP: Low fare, all frills. Only business class at less than economy fares. Mostly non-metros. Focus South India. INDIGO RAHUL BHATIA Launch: Nov 2005 Proposed fleet: 100 USP: Low-cost, low frill airline. Mix of metro and cross-country destinations. GOAIR JEH WADIA Launch: October 2005 Proposed fleet: 15 USP: Low-cost, low-frill airline. Mix of metro and small cities. Initial focus to be western India. MAGIC AIR NIRA RADIA Launch: January 2006 Proposed fleet: 10 USP: Low-cost, low-frill. Yet to get NoC from Government. To start with north, and eventually cover the whole country. Mohan Meakin's Indus, East West, Crystal, Air One and a Kerala government airline are some of the other carriers waiting to take off.

To be sure, pricing of low-cost airline seats is more complicated than regular airlines. Typically, a fixed number of seats in each sector is reserved for each fare class. In the case of Air Deccan, for instance, fares range from Re 1 to Rs 3,900 on the Delhi-Mumbai sector, with Rs 500, Rs 800 and Rs 1,200 being some of the price points. A fixed number of seats is allotted to each price point and the booking for that fare stops once those seats are filled. Lower the fare, fewer the seats and faster the booking shuts.

The format may vary in other airlines that are to be launched in the coming months, especially since most of them claim they will be the cheapest. The advent of LCCs has forced regular airlines to go cheap too. In addition to the apex fares introduced in 2002 by Indian Airlines, Jet and Sahara, all the three airlines now have variations of what is called "check fares" that are up to 60 per cent cheaper than full fares.

Some new airlines hope to break free totally from the two traditional (but now blurring) moulds of low-cost no-frill airlines and regular (all-frill) airlines. For instance, liquor baron Vijay Mallya's Kingfisher Airline is actually a full service regular airline, though it started in May this year with a range of promotional low fares. Paramount Airways, likely to be launched in August, aims to be a premium all-frill, yet low-cost airline. Promoted by Coimbatore-based textile barons, the airline claims it will only have business and first class, with fares lower than those charged by regular airlines. So expect airlines with combinations of services and pricing to enter the market.

What is feeding the Gold Rush phenomenon is the initial response to the new airlines. SpiceJet, with a fleet of three aircraft right now, claims to have occupancy ratio of 95 per cent. The average for regular airlines is 70 per cent. In the first month of its launch the airline sold over two lakh tickets. Kingfisher Airlines, with a fleet of two planes, has recorded over 80 per cent occupancy while Air Deccan's average for 18 months of its existence has been 85 per cent.

PICTURE SPEAK
Air Deccan G.R. GOPINATH Ran a chartered airline for the rich and powerful. Wants to fly each of India's one billion at least once. "We are competing with the railways, not Jet Airways."	SpiceJet AJAY SINGH Pramod Mahajan's former aide has partnered a Kenya-based NRI firm. SpiceJet is a listed company. "India's price-sensitive market is perfect for low-cost airlines."

The rush of promoters of all ilks into domestic aviation has Boeing and Airbus flying all the way to the bank. Indian promoters unleashed a buying spree at the recent Paris air show by placing orders worth an estimated $12 billion (Rs 52,800 crore). Jet Airways ordered 30 Airbus aircraft, Kingfisher ordered 15, including five 555-seat A380s. But it was the yet to be launched IndiGo airline that walked away with the jaw dropping order of 100 150-seat aircraft. The principal promoter of the airline is Rahul Bhatia with US aviation veteran Rakesh Gangwal as co-promoter. Airbus, which grabbed orders for 125 aircraft from India out of total orders for 280 planes, is now calling it the India show. "I feel like jumping up and down," says Vice-President, Sales, India, Nigel Harwood. And why not? Starting this month and until 2021, Airbus will deliver an aircraft a month to India. Rival Boeing, which had earlier bagged an order for 50 aircraft from Air-India, is equally bullish on India.

Much of the success of the new airlines will depend on keeping the cost low. But how do LCCs sell tickets so much cheaper than regular airlines? And if they can be so cheap, have regular airlines been overcharging all this while? Low-cost airlines are typically able to operate at 30-40 per cent lower expenses. The savings come from a combination of lower distribution cost (e.g. modes of ticket sale), modified aircraft design (higher seat density, single class) and lower operational costs (see graphic: How Low is Low Cost).

FIRST TIME FLIERS

THE SINGALS Travelled from Delhi to Mumbai at low fares "We are flying for the first time on a vacation to Mumbai after we got lucky with a couple of Rs 500 tickets." The Singals normally travel by train for business and leisure. But they chose to fly Air Deccan because it cost less than train fares. MRS PARASHAR AND SON Travelled from Mumbai to Delhi at Rs 4,500 "An emergency at home forced me to rush back to Delhi. The tickets for my son and myself cost only Rs 4,500." Another first-time flier for whom the option of travelling by a low-cost airline turned out to be the only way to make it in time.

But being cheap doesn't always mean being cheerful. Most LCCs across the world do not serve free meals or water, do not compensate for cancellations, have fewer toilets and scantier airport staff than regular airlines and may not offer frequent flier plans. European no-frill airlines like Ryan Air and EasyJet reportedly advise passengers against booking connecting flights. On the other hand, handling first-time fliers is posing some unique challenges to airlines in India. Passengers often request for fare reductions even at the check-in counters, some don't understand why baggage tags are needed and why the airline wants to take away the heavy luggage at the time of check-in or that carrying more than 15 kg of baggage attracts extra charges.

Affordability, though a key differentiator, is not the only benefit new airlines have brought to the Indian aviation. Availability and connectivity are other big pay-offs. Nearly 150 new seats will be added to airlines' fleets every month for the next 15 years from Airbus alone. Places that were not accessible by air till now or had disappeared from the air map in the past are coming on to the national network. There is a scramble among carriers to get first to cities that were not catered. These include Kolhapur, Trichi, Allahabad, Belgaum, Jalandhar and Katra. "As air travel evolves, smaller and under served cities will become more relevant and can even drive future growth," says Bhatia.

PICTURE SPEAK
Kingfisher Airlines VIJAY MALLYA Beer baron shut down his air taxi UB Air in 1990 due to restrictive policies. Wants to draw on UB's consumer product background. "Kingfisher Airlines will break even in a year's time."	GoAir JEH WADIA Heir to Bombay Dyeing and Britannia. Wants to offer fares lower than Ryan Air, the world's cheapest airline. "Our fares will be the cheapest on the planet."

Even if the future for aviation in India seems brighter than ever before (India has 189 aircraft compared with 750 in China), can the country viably accommodate over 300 new aircraft in the next 15 years? The aviation business may not need very high investments to start with (it can be started by leasing planes to test the market), but it is prone to cycles and external shocks-like 9/11 or the Kargil War. A single plane crash can prohibitively raise insurance costs for all airlines. "It was a blessing that the government did not give a no-objection certificate to our earlier airline venture Crown Airways. The 9/11 mishap would have broken our back," says Nira Radia, managing director of the yet to be launched airline Magic.

With the outpouring of passengers, Air Deccan managed to show profits of Rs 1 crore (minus depreciation and amortisation charges) in the very first year of its operation. Kingfisher too hopes to start making profits in a year's time. But even then a consolidation after a burst of launches is almost certain. "We are bullish on India, but there will be a shakeout followed by a consolidation among the survivors," says Dinesh A. Keskar, senior vice-president, sales, with Boeing.

Though airlines are grappling with infrastructure bottlenecks and pilot shortages and high prices of ATF (see following story), promoters are unanimous that the policy environment today is far more conducive to growth and Civil Aviation Minister Praful Patel is more eager to support-and even drive-the growth than his predecessors. A combination of interested promoters and an involved minister is the best flight plan to ensure more Indians take to the sky.

-with Priya Sahgal

Next

Index