Cause for Cheer

After nearly 15 months of distress, fortunes of the airline industry are once again beginning to soar. Since the last quarter of 2009, all airlines have been recording healthy load factors.

It was the courageous venture in August 2003 by Captain G.R. Gopinath that transformed the airline industry in India and brought air travel within the reach of the common man. Not only running a private airline was relatively a difficult proposition, Gopinath’s low cost business model for Air Deccan ushered in a completely new experience in India. Many veterans in the industry expressed reservations about its viability and, though reasonably successful in the West, dismissed the concept as irrelevant in the Indian context. The argument was based on the fact that the government granted no tax concessions or relief in any form to Low Cost Carriers (LCCs).

About two years since the establishment of Air Deccan, four more airlines—IndiGo, SpiceJet, GoAir and Indus Airways—entered the fray as LCCs. With Kingfisher Airlines and Paramount Airways emerging on the scene as high quality Full Service Carriers (FSCs), the number of airlines operating in the Indian skies rose from four to 11.

The market was booming with average annual growth rate between 20 and 25 per cent. Steeped in optimism, airlines indulged in unbridled expansion of capacity and network. IndiGo created a flutter when it placed a single order for 100 Airbus 320 aircraft to be delivered by 2016. Other airlines, too, joined the race for the acquisition of new aircraft. Competition in the industry was intense and fares sank to unrealistic levels and FSCs were compelled to drop fares to remain competitive. Finances of airlines were under tremendous strain on account of the high cost of trained, qualified and experienced human resource which was in short supply, high airport charges and high tax burden on fuel that constitutes 40 per cent of operating cost. Operating under these adverse conditions, losses continued to mount and airlines fiddled with their business models to improve yields hoping to break even within three years of operations. Despite vigorous effort, profitability remained a distant dream. Upheavals followed as unable to sustain operations, Indus Airways downed shutters, Air Sahara was taken over by Jet Airways and Air Deccan was bought off by Kingfisher Airlines.