Indian Aviation Market - Price Wars

Aviation Industry growth in India in the last 4 years have seen the rise of the Low Cost Phenomenon, increased domestic connectivity has made air travel affordable for the common man for the first time. With the LCCs increasing the very base of the market by adding a new profile of passengers, traffic grew by 21% in 2004 as compared to the previous year. With a population of one billion, India's huge middle class remains largely unexplored and the new airlines are targeting precisely this segment. If the first phase of the low cost invasion was by Air Deccan, Kingfisher, Air-India Express and Spice Jet, the second phase is just about to take off. The line up of new entrants includes IndiGo, Go Air, Tiger Airways, Magic Air, Paramount Airways, East West Airlines (in the process of resurrecting) and many more. With a population of one billion, India's huge middle class remains largely unexplored and the new airlines are targeting precisely this segment. The aviation sector is thus poised for a massive hike in domestic load factors, with many passengers being coaxed to shift from air-conditioned superfast trains to air travel. Wing Commander (Retd) Raju Srinivasan, Chief Business Co-ordinator, Air Deccan, says, "There are two million reserved rail travelers everyday. Out of this about 10% are upper class travelers. If even 50% are weaned away, the aviation sector needs an additional one lakh seats per day given that all airlines put together offer only 40000 seats per day. " Although, there has been a significant increase in domestic air traffic as well as cargo in India, some critics query whether the domestic airline market is really big enough to accommodate the huge increase in seat capacity that will soon be available. The CEO of Magic Air, Nira Radia, thinks so, "There is easily space for six-eight carriers in the 300-million middle- class market after which you might have some  consolidation." Most analysts share his view that the domestic market is on a high growth phase and there is some time before saturation levels would be reached.

However, the biggest factor still remains the price and affordability. Would the low prices be sustainable and, most importantly, profitable for the airlines in the long run? In a price sensitive nation like India, price would be the biggest factor that would determine who emerges as the dominant player or indeed, who survives. Each new airline has its own costing philosophy and given that they are trying to explore new business avenues, the current price war is bound to intensify. Air Deccan already has the lowest fares and may slash prices by another 20% in order to bring the average ticket price on par with second class AC train travel. Go Air has a similar costing ideology and would also be targeting passengers travelling in II/III-tier AC railway coaches and in AC buses. And that's where the bloodbath will occur as more and more new entrants ~ Paramount Airways MD M Thiagarajan with Todd Freeman, GECAS Senior Vice ~ President (left) and Embraer President ~ and CEO Mauricio Botelho (right) at the J Embraer factory in Brazil.

The Indian market dynamics are intrinsically strong and the country is doing extremely well economically. Coupled with the newfound political will to open  up the aviation sector and upgrade infrastructure, it makes a great business climate to operate within.