In 1991, when the government announced the Open Sky policy for private carriers, Naresh Goyal-promoted Jet Airways was launched and it took air travelers by surprise. This largest private carrier, apart from its peer Air Sahara, posted robust growth by grabbing a hefty market share of nearly 46% when it went public in 1993. Though the carrier had a humble beginning, it went on expanding its network to over 50 domestic destinations.
Its not only the well-off who should fly, believed Captain GR Gopinath and started a low-cost, no-frills airline, called Air Deccan, in 2003. At the time of the launch, he had said that his vision was not only to connect remote parts of India but also make air travel affordable for the masses. The affordable fares of Deccan made its popularity soar. The budget carrier created history by flying passengers for as low a fare as Rs 500 plus taxes (Rs 200). It also offered 75% of the seats at a rate almost 50% lower than Jet, Sahara and Indian Airlines. It introduced Dynafares where passengers can book their tickets 90 days in advance to avail of bigger concessions.
With the entry of private carriers, state-run carriers like Indian Airlines started losing market share to private carriers. As if this was not enough, in 2005, Vijay Mallya-controlled UB Group launched a luxury airline, Kingfisher Airlines. Later in the same year, the Wadia Group launched a low-cost carrier, GoAir, and competition became fierce.
Thus began a tough battle to grab a bigger share of the market. All airlines indulged in concessional fare schemes to woo passengers factorsmore so 2006 onwards. The prices of aviation turbine fuel too started rising from the $68-a barrel level.
With competition getting intense and airlines unable to sustain the rising costs, there came a wave of consolidation. Air Sahara, the second private carrier after Jet Airways to have launched operations after the Open Sky policy, hit a rough patch. Sensing an opportunity to grow his business, Jets Goyal approached Sahara Group honcho, Subrata Roy, for a possible buy-out. While Goyal paid an advance of Rs 100 crore in 2006, the deal was stalled and the matter went to court over valuation issues.
After about an year, in March 2007, Jet Airways finally took over Air Sahara in an all-cash deal for nearly $500 millionpossibly the biggest deal in Indian civil aviation. Air Sahara was rechristened JetLite, a wholly-owned subsidiary of Jet. Also, a merger of Indian Airlines and Air India almost at the same time posed serious challenges in terms of manpower integration. Air India and Indian came together under the aegis of NACIL (National Aviation Company of India Limited) and are in an integration mode. It will take another year to complete the merger process.
The sector, which had seen the entry of new private carriers, consolidation, mergers and fierce competition, succumbed to financial pressures in mid-2008 against the backdrop of high crude oil price at $147 a barrel coupled with a financial meltdown leading to a dip in air travel.
Airlines went on a cost cutting spree by showing pink slips to its unconfirmed employees. Jet Airways sacked nearly 800 of its cabin crew staff but had to call them back faced with political pressure.
The likes of Air India and Jet Airways have cut down on their international routes on which the passenger load is thinning. Airlines are looking at ways and means to utilise their assets to boost their working capital. Jet Airways and SpiceJet have leased their aircraft to international carriers to infuse funds in their respective airlines.
The sector is in a wait and watch mode until the Union Budget 2009-10 when ATF is expected to be denoted as declared goods and, therefore, attract a 4% sales tax. Airline bosses say that if such a move is announced by the government, they will lower airfares with immediate effect. Says analyst Kiran Yadav, The sector is underperforming in the current year, but it is a passing phase. Once the market conditions improve, the sector will return to black.