Three paths to no-frills flight

http://www.dnaindia.com/report.asp?NewsID=1089342
Praveena Sharma Friday, April 06, 2007 22:38 IST




BANGALORE: These are desperate times for the low-cost carriers. And each one is trying to chart a different flight path to shore up yields and load factors.
If the oldest budget airline Air Deccan is looking at connecting metros to under-served cities, rival SpiceJet has decided to sub-lease two aircraft during the next lean season (July to September).
GoAir is taking the consolidation route and has focused completely on profitability. “Chasing market share is not economical. What we want to concentrate on is yields, people performance and productivity. Our strategy is being aggressive in the peak season and consolidating in the off-season,” said GoAir’s promoter Jeh Wadia.
In contrast, newest no-frills but fastest-growing airline IndiGo has aggressive expansion plans. By March 2008, it will expand its fleet to 18 aircraft. This, it wants to do by giving affordable fares without compromising on yields
Even Air Deccan, which has reached a fleet size of 40 aircraft (19 Airbus +19 ATR), has not plans of slowing down. By the end of this calendar year, the carrier would be adding 12 aircraft. “There are so many under-served markets. These markets give us better earnings as they have lower cost per available seat kilometre (ASKM) compared with metros. Our inaugural flight from Delhi to Dharamshala to be launched this month has been fully booked,” says Deccan Aviation chief revenue officer Samyukta Sridharan.
Today, of Air Deccan’s 333 flights only 80 flights are operated on the top eight metro routes - Delhi, Mumbai, Chennai, Kolkata, Bangalore, Hyderabad, Ahmedabad and Pune. And Air Deccan is planning to chase these non-metro markets by offering attractive offers. This would be mean that it will continue to flood the market with discounted fares, which will be subsidised by ancillary income (non-passenger revenues).
This is reason Air Deccan managing director Capt G R Gopinath is keen on boosting the ancillary revenues to 25% in the next 2-3 years. But he is not alone. Every budget carrier has turned its attention to allied revenues.
SpiceJet, which till now had kept away from onboard food sale, is planning to start hawking snacks and beverages on its long-haul (more than two hours) flights from April 10. For this, it has tied up with Skychef.
“Foreign low-cost carriers like Ryan Air and EasyJet generate a chunk of their revenues from allied services. A major part of their ancillary income comes from selling alcoholic beverages on the flight but in India, we can’t do that,” says SpiceJet CEO and chairman Siddhanta Sharma. And this income has not just caught the fancy of Air Deccan and SpiceJet, it is being pursued by every budget airline.
But Air Deccan’s ancillary plans do not end there. Soon, it will be selling travel insurance, home loans, credit cards and tour packages on it website. SpiceJet, GoAir and IndiGo also have similar plans.
Currently, Air Deccan earns the highest ancillary income - 6.5% of its total revenues. It wants to take this income to 10% in the next 12-15 months. For SpiceJet and GoAir, it is 6% and IndiGo’s is 5%. While SpiceJet will take it to 9% by March 2009, IndiGo is targeting 15% by March 2008. Like ancillary revenues, SpiceJet’s plan for fleet expansion is also toned down. While IndiGo will have 18 aircraft in its fleet by March 2008, SpiceJet is aiming at 25 by March 2009.
GoAir, which scaled down its fleet from seven to five aircraft, will have 12 aircraft by the end of this year.
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