Low-cost airlines are set for a great gig

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: $1 billion,” Kaul says.

Such airlines globally depend on bringing down the operating cost to the extent that it becomes viable to offer fares dirt-cheap. The operating cost is usually badly affected by variables like aviation turbine fuel prices and congestion at major airports, which lead to higher operating cost and huge losses.

In India, the price of ATF is around 70% higher than in most countries, leading to a much higher cost-variable for low-cost carriers. The ministry of civil aviation, along with the likes of the Federation of Indian Airlines, are trying to make the finance ministry, the petroleum ministry and the state governments reduce taxes on ATF, apart from asking oil companies to rationalise the ATF prices. “At present, the prices are still affordable, and with crude oil coming down recently, fares are expected to remain stable for a while,” Parthasarathi Basu, CFO of Spicejet, feels. “And now, with hedging allowed, costs are expected to remain stable as well,” he adds.

“Over the past 18 months, domestic air fares have been irrational and unsustainable, leading to huge losses. I do not believe airlines can sustain these fares for long. So, I would anticipate a rationalisation of fares. However, as fares are dictated by the lowest common denominator, a new entrant into the market or a smaller player fighting for market share can upset the revenue models for the bigger players. We’ve already seen fuel surcharges reach unbelievable levels, so its obvious that cost pressures exist,” Ankur Bhatia, ED, Bird Group, says.The congestion at major airports in the country has led to even higher operating costs for low-cost airlines.