The aviation sector is often believed to be in very close correlation with a region’s economic growth and prosperity. In parallel with rapid globalization and India’s recent growth story, the Commercial Aviation sector in India has witnessed a paradigm shift over the past two decades. It has changed from an over regulated, monopolized and ill-managed sector to a liberal and investor friendly playground. In 1953, nine existing companies were transferred to two government run entities: Indian Airlines (serving domestic routes) and Air India (serving international routes. From such a nationalized beginning the sector gradually opened up and 1992 was marked with the government deregulating India’s aviation sector. This marked the beginning of a new era in Commercial Indian Aviation where private airlines flourished and air travel came of age.
Simultaneously, on the global picture, dynamics of the aviation sector in the international market changed drastically with the introduction of Low Cost Carriers (LCCs) like Southwest Airlines (USA) and Ryanair (Europe). It was finally in 2003 that the launch of Air Deccan marked a beginning for Low Cost Carriers in India. This led to a reincarnation of air travel in India from “for the elites” to “for the people”. Ever since Air Deccan started the revolution, many such players have entered the industry and they continue to flourish with rapidly climbing revenues and air traffic figures.
Through a broad view point, the Indian LCCs have emulated their international counterparts who achieved success much earlier but there have been considerable efforts to include the Indian pulse.
Low Cost Carriers in India: Business Model
The LCC model is not just about low fares but also about more efficient operations and a constant drive to reduce operational costs. Very plainly, LCCs represent a leaner and fitter organization. The entire structure rests on the important principle of volume gain, no-frill plain travel services and an aim to commoditize air travel for the common man. Their operations are characterized by low margins and load factors are crucial for profitability.
Growth Drivers
Passenger Growth: Airline passenger growth is generally related to the GDP of a country. It is seen that air transport grows at twice the rate of GDP growth. The international passengers have grown by around 16% and the domestic passengers have grown by over 22% over the years. Air travel has increased a lot over the years because of multiple reasons. Some the important ones being:
- Increase in inbound and outbound tourists and medical tourism
- Over 300 million strong middle class which can be tapped as a potential passenger and can be drawn away from railways.
- Disposable incomes are expected to grow at an average rate of 8.5% per annum till 2015, which shows willingness on the part of passengers to shift to air travel.
Passenger Growth Data
Low Entry Barriers: Recent analysis in the sector has suggested that airline launch can be done with a capital of $10 million. Most of the components of air service ground handling; catering, training, reservation etc are outsourced by airline companies.
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