Dogfight in Indian airspace begins before AirAsia launch

Written by Rhik Kundu | New Delhi/Mumbai | Updated: May 9 2014, 07:25am hrs
AirAsiaThis should not come as a surprise, since AirAsia had announced well in advance that its base will be Chennai and it would focus on smaller cities.
Competition in Indian skies is set to take off with AirAsia readying to enter the market in a couple of months with low fares and targeting the relatively untapped tier II and III city market. However, given the lead time they had nearly 17 months from the time the carrier announced its India plan to getting the flying permit incumbents SpiceJet, IndiGo and Jet Airways have been spreading their wings to markets where they foresee competition coming, offering discount sales of tickets to lock in passengers in advance. While fliers may rejoice, analysts worry that disruptive pricing may further affect the precarious balance sheet of the carriers, most of which are loss-making.

To counter the new entrant, market leader IndiGo (31% share in March 2014), for instance, is expanding its fleet by adding one A320 every month, while shifting its focus towards South India by doubling weekly flights to Visakhapatnam and expanding flights to Thiruvananthapuram and Kochi, and adding new destinations in smaller towns like Varanasi and Ranchi. This should not come as a surprise, since AirAsia had announced well in advance that its base will be Chennai and it would focus on smaller cities.

Meanwhile, another low-fare carrier, SpiceJet, has focused on a series of super-sale offers to guarantee usage of inventories (seats), along with a sharp focus on revenue management. In fact, its offer of selling a few tickets at R1 also attracted the wrath of the regulator Directorate General of Civil Aviation that called it predatory pricing and asked the airline to immediately strike it down. To retain customers and focus on reliability, SpiceJet has also begun several initiatives like announcing an on-time guarantee earlier this week under which it will compensate customers for flight delays.

Interestingly, AirAsia does all of the above in other markets and again, it is not surprising that SpiceJet has taken a leaf out of the AirAsias book since Kaneswaran Avili, who joined SpiceJet as its new chief commercial officer, is from the founding team of AirAsias first operations in Malaysia in 2001.

We are focused on both revenue management and cost management. In India, it is known as fare wars but in reality it is standard practice it makes no sense to fly empty seats. As long you structure the offers in a manner that doesnt dilute your overall yield, these are revenue-contribution-positive. On an average, airlines in India are flying 20-30% empty seats, so our strategy is to fly fewer empty seats and generate incremental revenue, said Sanjiv Kapoor, SpiceJets chief operating officer in an interview to FE recently.

State-owned Air India has also shrugged off its lethargy and geared itself for meeting the competition. Apart from launching sale offers to fill up vacant seats on the domestic legs of international flights, thereby generating additional revenue, it has also reconfigured its A320 narrow-body aircraft family by reducing business class seats from 20 to 12 and increasing the economy seating. An AI official said that four of the A320 and six A321 aircraft have already been reconfigured, resulting in enhanced capacity.

Jet Airways, which along with Jet Lite is the second-largest domestic player, has also bolstered itself after Etihad picked up a 24% stake in it last year. It has got access to more global destinations and the ability to strengthen its position by expanding its fleet with the support of its global partner.

Deep Narayan Mukherjee, senior director at India Ratings & Research, said, There is already an overcapacity in the industry. We have seen drastic price wars and airlines with bleeding balance sheets. With AirAsia India becoming operational, this is likely to continue.

Added Kapil Kaul, South Asia chief executive at the Centre for Asia Pacific Aviation, The airline environment in India continues to be precariously placed. The market is unviable, with some unable to raise fresh capital. We can expect disruptive pricing and marketing innovation with AirAsia. SpiceJet has begun to get its act together, but it has a long way to go. I expect everybody to take a competitive position.