Low-cost carriers come out in flying colours as market share, load factor turn buoyant

Written by Shaheen Mansuri | Mumbai | Updated: May 29 2010, 04:58am hrs
Despite having smaller fleet sizes, low-cost carriers (LCCs) like SpiceJet, IndiGo and GoAir have done exceedingly well in terms of market share and load factors during the financial year 2009-10, compared to their full service peers Air India, Jet Airways and Kingfisher Airlines, data from the directorate general of civil aviation has showed.

The LCCs market share for the year stood at around 34%, compared to full service carriers 57%, which is considered outstanding given the smaller fleet size and network.

For example, SpiceJet with a market share of 12% with 125 flights daily to 18 destinations, has adopted a 100% operating lease model. The carrier, rather than buying the aircraft, leases it for a fixed period of time. Full service carriers use the financial lease mode where they own aircraft and have higher incidence of depreciation and interest costs as compared to SpiceJet. The operating lease model is believed to be better, as rentals on aircraft cost 10-11% of the total value of the aircraft annually.; Additionally, these contracts are highly flexible and short-term in nature, says an analyst.

GoAir, which has a 5.9% market share, also had one of the lowest cancellation rates, and improved on-time performance, which has helped the carrier maintain healthy growth.

V Sushi Shyamal, partner-Transaction Advisory Services, KPMG cites three factors responsible for taking the airline on a growth trajectory. The average pricing in terms of tariff has gone up for the industry. For example, today, Mumbai-Ahmedabad commands a fare of Rs 8,000 for a round trip which otherwise was anything between Rs 5,000-6,000, a year ago. Airlines have collectively decided to not go below the threshold in terms of pricing. Second, GoAir has a tremendous benefit of having a small fleet size. Its aircraft utilisation is much higher. Last, the carrier mostly flies to the north destinations which is anyways has a high density network in terms of traffic.

Says Rakesh Tiwari, vice president-commercial operations at GoAir, Correction in capacity since mid 2009 has helped us grow in terms of passenger figures and market share. He added GoAir has not gained market share at the cost of its peers. It is the incremental growth in air traffic after the market has recovered and all carriers are in growth mode.