Take-off 2006: Big learnings from flying

Low-Cost Shakeout coming?

Without doubt, 2005 was the year of low-cost air carriers. The aviation industry saw a glut of new air-carriers 8212; Kingfisher Airlines, Spicejet, the Wadia-owned GoAir, Paramount Airways and AirIndia Express 8212; entering into the market to break the stranglehold of old hands Indian and Jet Airways. They set a scorching pace in aircraft purchases. India8217;s airline industry has so far ordered for 383 aircraft worth a whopping 27.8 billion. The country8217;s current air fleet strength stands at 220 and a further 50-60 aircraft will be added in 2006.

This year, expect IndiGo, Magic Air, AirOne and Indus Air, among others, to join the bandwagon. That8217;s why analysts warn that supply is fast outpacing demand. Fears have been raised that the sector could face a repeat of the 1990s when airlines like Damania, NEPC and East West came with a lot of hype but faded into oblivion.

8216;8216;Low-cost carriers have given full-cost air carriers like Jet and Indian a run for their money. But it is difficult to predict how long these new entry carriers can sustain their operations with ATF fuel heading northwards. This year could set the base for acquisitions of LCCs by bigger players,8217;8217; said Alok Dayal, India Infoline8217;s aviation analyst.

Centre for Asia Pacific Aviation8217;s Kapil Kaul also feels that the year could set the ground for merger between two full-fare carriers and an acquisition of a low-cost carrier.

Will fares remain low?

The entry of new players in the market could mean lower fares for customers but analysts feel that the new carriers can8217;t sustain this for long in the backdrop of rising ATF prices. Fuel prices constitute nearly 33 per cent of an airline8217;s expenditure. Another round of rise in crude oil prices will make things difficult for airlines.

The government has taken a step in mitigating the airlines fuel costs by allowing Air India and Jet Airways to hedge fuel sourced from outside the country. The New Year could see easing of regulations which would allow other airlines to take benefit of this. It will also see the elimination of middlemen for booking of tickets with more and more airlines moving towards e-ticketing and online booking platform. Airlines, as part of their efforts to cut their operating costs, have started cutting agents commission in 2005.

Better infrastructure?

Airlines see some answers for their biggest bugbear 8212; overcrowded airports, stretched air traffic control, lack of amenities and antiquated ground handling equipment 8212; in 2006, when the government8217;s airport modernisation and restructuring programme takes off.

January should see finalised bids for Mumbai and Delhi8217;s airport modernisation programme. In March, the government will also invite bids for Chennai and Kolkata airport, while work on developing 30 non-metro airports has already commenced.

However, there is still no answer to the shortage of pilots shortage estimate for 2006: 400 pilots. According to civil aviation ministry estimates, the sector will need some 3,000 to 5,000 fully trained pilots in the next three to four years, a number equivalent to the total number of pilots hired over the past half century.

Flying into IPO zone?

The coming year will also see airlines like Indian, Air India, Air Deccan and Kingfisher Airlines approaching the capital market. Analysts estimate that the airlines could raise close to 1 billion by listing on Dalal Street. The new year will also see turf wars between airlines in fields like cargo services, flying academies and maintenance and repair operations. Carriers like Kingfisher Airlines, Go Air and Air Deccan have already spelt out their intent to enter into these new sectors. And, of course, expect 2006 to also see airlines venture into hospitality. When it8217;s still all about wooing the customer, who says the romance of flying is dead?