An extraordinary feature of India’s airline industry is that only one of its nine scheduled carriers, IndiGo Airlines, is convincingly profitable. Air India, the chronically ill flagship carrier, should have shut shop long ago but regular government doles keep it afloat. Jet Airways, despite equity infusion from minority stakeholder Etihad Airways, will take several years to wipe out its huge accumulated losses. SpiceJet had a near-death experience towards the end of last year and was saved by a whisker. Despite a couple of good quarters and ambitious plans to buy many more jets, it may not return to financial stability soon. Earlier this year, GoAir too seemed to be in a spot of bother with a couple of top functionaries and many pilots quitting, a rumoured cash crunch and a steep cutback in flights by at least 10 per cent.

There’s more. Since 2008, several airlines have either been taken over or merged, while at least four have ceased to exist. The most prominent of these, Kingfisher Airlines, lurched from crisis to crisis till it finally went belly up. Yet the very visible plight of the industry seems not to deter new aspirants. Within the last two years, five new airlines have launched operations – Air Costa, AirAsia India, Vistara, Air Pegasus and TruJet. And more are itching to join the fray.

Rising Traffic, Deadly Debt

What attracts so many new players? The answer is passengers – millions of them. India is the world’s ninth largest aviation market and is projected to become the third largest by 2020, behind only the US and China. Although consulting firm Centre for Asia Pacific Aviation (CAPA) prefers to temper official claims, forecasting that the milestone will be achieved only by 2025 – that too is impressive. CAPA also predicts in its “India ATM Report 2015” released on May 27 this year, that passenger traffic will almost triple in size within 10 years. The vigorous growth during the first six months of 2015 supports this glowing forecast. According to the Directorate General of Civil Aviation (DGCA) domestic passenger traffic in the January-July 2015 period was up 19.81 per cent year-on-year to 39 million. Besides, the sharp and unexpected drop in the price of oil that began around the middle of 2014 has brought hope that operating expenses can be kept under control.

But one aspect, often glossed over, is that a significant number of India’s air travellers are lured by rock-bottom fares and flash sales, and these do no good to the struggling carriers’ bottom lines. If any airline has the temerity to raise fares, passengers either switch to a rival with cheaper tickets or simply decide to travel by surface. According to CAPA, the airline industry is reeling under accumulated losses of over $10 billion and debts of $16-17 billion, while it posted losses of about $1.4 billion during fiscal 2014-15. It needs to find $2.5 billion over the next 12 months for expansion and operational expenses. While CAPA believes that losses may reduce by 40 per cent this year, the question remains where will that kind of money come from? And what makes the newcomers think they can succeed where the rest are floundering?

Air Pegasus – High Hopes

Décor Aviation owned Air Pegasus, named after the winged divine stallion of Greek mythology, was launched on April 12 this year. This regional airline began modestly with just two ATR 72-500 turboprops. Claiming to be ‘a right-cost airline’ it operates flights to Thiruvananthapuram, Hubli and Kadapa from its hub at Bengaluru. Though it will initially stick to small towns and cities to keep costs low, it plans to add three aircraft by December 2015 and reach a fleet of 10 by March 2016 and connect destinations such as Kochi, Chennai, Belgaum, Rajahmundry, Puducherry and Madurai. It eventually means to expand to North India, setting up a hub at Chandigarh and connect cities of Jaipur and Bhavnagar. Pegasus hopes to break even as early as December 2016. It is a good sign that passenger load factor (PLF) is close to 80 per cent. In the long term, depending on government regulations, it might even consider international destinations like Malé and Dhaka.

Vistara – An Expa nsive Vista

Another airline to get off the ground this year was Vistara, a Sanskrit word meaning ‘Limitless Expanse’. A joint venture of Tata Sons and Singapore Airlines, Vistara commenced operations on January 9 from its hub at Delhi with a fleet of three Airbus A320 aircraft. In keeping with its slogan ‘Fly the New Feeling’ it is the only airline to feature premium economy seats on domestic routes in the Indian market. Although its PLF was initially low, it later improved and its fleet doubled to six aircraft touching 10 destinations by May 2015. Looking ahead, it plans to have nine aircraft by March 2016 and 20 by March 2018. While 13 aircraft in the fleet will be the Airbus A320ceo, the remaining seven will be the more advanced A320neo jets.

However, this is only the beginning and the airline does not hide its desire to go international when regulations permit. Since 70 per cent of international traffic from India is westbound, it will need to compete with strong foreign carriers that dominate traffic to the Middle East, Europe and beyond. It believes it needs a fleet of at least 50 to take on veterans like IndiGo and Jet Airways. Hence, it plans to acquire more narrow-body and wide-body aircraft, expand its domestic network and launch short-haul and long-haul overseas flights, eventually becoming a global carrier. This should please Ratan Tata, Chairman Emeritus of the Tata Group, who has always longed to see his cherished company successfully run a major airline.

A small airline will surely face viability challenges and must be well capitalised to take on competitors.

AirAsia India – Asian Values

AirAsia India’s parent AirAsia Berhad is regularly named the ‘World’s Best Low-Cost Carrier’. AirAsia India planned to commence operations in 2013, but convoluted regulatory procedures and legal challenges delayed its first commercial flight till June 12, 2014. Initially, it operated just one Airbus A320. After experimenting unsuccessfully with Chennai, its main hub is Bengaluru and it recently added Delhi as another hub. It believes the metros are saturated and expensive and added Delhi as a hub only to facilitate northern operations. Although its PLFs are fairly healthy, it is still in the red and hopes to break even only by December 2015. Its fleet size has grown to five, touching nine destinations, far below its planned trajectory of 11 planes by the end of the first year of operation. It will need many more planes to live up its slogan ‘Now Everyone Can Fly’. However, further fleet expansion will be governed by the long-awaited new regulations on international operations, which it dearly wishes to launch.

Air Costa – Cruising Along

Air Costa, based in Vijayawada, has the slogan ‘Happy Flying!’ It commenced operations as a regional airline on October 15, 2013, with a fleet of two Embraer E-Jets. It now has two E170s and two E190s and flew its millionth passenger at the end of June this year. It has hubs at Chennai, Visakhapatnam and Vijayawada from where it operates 34 flights daily to nine destinations including Bengaluru, Chennai, Ahmedabad, Visakhapatnam, Hyderabad and Jaipur. Its PLFs are consistently above 75 per cent. It is scheduled to add another three E190s in 2015 and will keep acquiring aircraft regularly to reach a fleet size of 25 E-Jets by 2018. In addition, in February 2014, it placed a huge order for 50 Embraer E-Jets E2 (25 E190 E2 and 25 E195 E2) and deliveries are scheduled 2018 onwards. It also has purchase rights for another 50 aircraft.

Air Costa has applied for a pan-India permit and hopes to begin expanding its network across the country by the year end. However, despite various cost-cutting measures like more efficient operations and maintenance, and regularly tweaking its network, it suffered significant losses in the fiscal year 2014-15. One reason could be having two different types of aircraft in such a small fleet, which raises maintenance costs. With three to four new airlines emerging in South India this year, Air Costa could face fierce competition, something it has mostly escaped so far.

Yours TruJet-ly – From Film World to Aviation

Who would have thought that a Tollywood actor would be the latest to venture into India’s commercial aviation industry? Ram Charan, actor-politician Chiranjivi’s son, and himself an award-winning artiste, is the promoter, director and brand ambassador of TruJet. Hyderabad-based budget regional carrier TruJet will focus mostly on potentially busy routes between Tier-II and Tier-III destinations and target middle-class passengers. Its first flight on July 12 took off from Rajahmundry and it currently touches cities like Hyderabad, Chennai and Tirupati. It is the only operator in the Hyderabad-Aurangabad sector and plans to expand to places like Shirdi, Bengaluru, Hubli and perhaps Goa in the near future.

TruJet began with a small fleet of two 72-seat ATR-72-500 turboprop aircraft leased from an Irish company (a third is expected any day) but will expand to five planes by March 2016. The airline benefits from the lower fuel prices and tax breaks prevailing in Andhra Pradesh. With an investment of Rs. 500 crore spread over five years, it hopes to operate bigger aircraft to the metros after two years. It remains to be seen if TruJet will be able to manage the complexities of operating two different fleets.

With a young fleet, high aircraft utilisation, and especially with novel ways to attract passengers, the airline hopes to succeed where many other ventures have failed. It aims to be ‘a quality airline with warmth, care and efficient service’. Focusing on convenience, it will provide free meals in flight and will even offer pick-up and drop facilities from select locations. According to Ram Charan, TruJet needs about three years to break even. The killing fields of Indian commercial aviation must be a new experience for this movie icon. He probably knows it will take more than bigscreen heroics to win the bruising real-life battle ahead.

Many More to Come?

Over the last five or six years, a record 20 companies have applied to the Ministry of Civil Aviation for no objection certificates (NOCs) to offer scheduled commercial services. Although as many as 16 of these were issued NOCs, only five actually obtained the coveted Air Operator’s Permit – the final hurdle before commercial flights can commence.

Apart from the four new airlines mentioned above, TruJet took to the skies on July 12 this year (see box). Others are still revving up for launch. To begin with, there’s Zav Airways, a Kolkata-based regional helicopter operator, that hopes to launch operations this year as the country’s first scheduled rotary-wing service and cater exclusively to the East and North East. While it intends to start with just two Dauphin AS365 N3s, its goal is 12 helicopters. Next there’s ABC Aviation’s FlyEasy, a Bengaluru-based regional airline. It will use two or three 110-seat EMB-190 regional jets to launch services around October 2015. Coimbatore-based regional carrier Air Carnival intends to commence flying this year with an initial fleet of two ATR 72-500 aircraft, scaling up to 12 within two years. And Chennai-based Premier Airways intends to launch another ‘easy’, EasyAir, by year end with leased aircraft. EasyAir, a low-fare national carrier, has ambitious long-term plans. It is in discussion with Airbus for 40 A320neo jets, deliverable from 2018-19 onwards.

Meanwhile, the industry awaits with bated breath the longoverdue new aviation policy. Although the 5/20 rule is likely to be scrapped, it is not yet clear what might take its place. While the older airlines seem happy to retain their first-mover advantage for at least another couple of years the novices view the much-reviled rule as a needless hurdle to their commercial plans. It now seems unlikely that the far more complex proposed scheme of domestic flying credits (DFCs) will be introduced. According to this scheme, permission to fly abroad was to be linked mainly with the deployment of capacity towards remote and unviable domestic destinations. Besides, more DFCs would need to be accumulated in order to operate the lucrative short-haul flights of four to six hours duration than to fly long-haul overseas routes. Thankfully, the industry may be spared this bizarre formulation.

Is there room for so many new airlines? India’s commercial fleet of around 400 aircraft is set for major expansion, with over 700 new planes on order. Analysts believe this could result in significant over-capacity and trigger even fiercer competition. Already, the apparently suicidal degree to which some carriers are prepared to slash fares to grab market share has left even low-cost warriors like AirAsia India stunned.

A small airline will surely face viability challenges and must be well capitalised to take on ferocious competitors like IndiGo, Jet Airways and SpiceJet. Yet the new entrants have high hopes. They are raring to go, undeterred even by some of the highest fuel prices and airport charges in the world. Whatever the future holds, the newcomers are bound to spice up India’s aviation scene.