Naresh Goyal, chairman of Jet Airways, recently announced that his airline will close down its no frills service, Jet Konnect, to focus on a single brand full service carrier strategy to bring the airline back into profitability by the financial year 2017.
Jet Airways economy offering will be defined and will be competitive with that of the other domestic carriers and low-cost carriers, said James Hogan, chief executive officer of Etihad Airways and a member of Jet Airways board of directors, at a recent event in Mumbai.
Aviation experts note that while JetKonnect clearly needed to notch up more market share to break even, the advent of Air Asia Indiaknown for its competitive pricingcould have persuaded the management to do away with segment altogether.
Jet Airways, which lost some of its market share to low-cost carriers, is looking to increase its market share in the full service segment, said Sharat Dhall, president of Yatra Online Ltd.
With the arrival of new airlines, experts say, a blood bath is imminent, especially among the existing airlines whose finances are in a bad shape.
You can expect further predatory pricing from airlines to attract passengers when these new carriers finally launch, said an aviation consultant who didn't want to be named. As a result many of the existing airlines will further bleed financially and the sector could see some sort of a consolidation in the coming fiscal, he added.
However, existing airlines are already gearing up for the competition. Kalanithi Maran-controlled no-frills carrier SpiceJet, the second largest domestic carrier in terms of passengers carried, is working to achieve profitability by garnering a greater market share and reducing costs, a strategy that will help the airline in the future.
SpiceJet has started filling up empty seats by offering heavy discounts, which have ensured that fixed costs like taxes and fuel charges are recovered, even if the airline doesnt make any profit from those seats.
A senior SpiceJet official said a part of the airlines turnaround strategy is to lure corporate customers. In the recent months, SpiceJet has also emphasised on on-time performance (OTP) and better customer serviceslike travel discounts in future for flight delays. The airline also overhauled its food menu and added two new services aimed at corporate travellersSpiceMAX and SpiceFlex. While SpiceMAX offers extra legroom in the first five rows at a premium, Spiceflex is a bundled class fare that includes complimentary meal, priority check-in and the like.
Wadia group-owned GoAir, a profit-making airline, is expanding its presence in tier-2 and 3 cities and towns to garner market share in places where some of its rivals are absent.
We have recorded significant increase in our tier-2 operations in places like Patna, Lucknow, Jaipur, Kochi, Chandigarh, and Jammu and Kashmir, while our metro to metro business havent witnessed significant growth, the airline's chief executive officer Giorgio De Roni told FE at an interview earlier. He said the airline sees further growth opportunities in eastern India.
State-owned Air India, the third largest in the domestic space in terms of passengers carried, which is required to keep a seat utilisation level (load factor) of above 75% as per the government-implemented Turn Around Plan (TAP), has achieved an average seat utilisation of about 78%-80% on both economy and business classes across its fleet.
A senior official with the airline told FE that the airline is undertaking a series of reforms which include improving both operational performances and providing better customer services to take on competition.
A slew of reforms and improvements in the airline is expected to save us up to R1, 000 crore in FY15. This include an improvement in our passenger revenue, along with a better operational efficiencies, said the official, adding, This will allow us to be better prepared for our competitors, some of whom will start their operations in the coming months.
Aviation consultancy, Centre for Aviation Asia Pacific, in a June report said that the structural viability of airline business models will continue to face pressures as costs are expected to increase while yields are likely to remain soft with new entrants coming into the market. Combined airline losses are expected to reach $1.3-1.4 billion in FY15, the report said.
Airlines, other than IndiGo, will require $1.6 billion of funding this year just to sustain their business models. The prospects for further direct investment in airlines remains very uncertain in the current climate, it said.