Isn’t this what the Indian consumer always wanted. Cheaper air fares more competition and better service (hopefully) due to the intense competition brewing in the Indian Civil Aviation sector for quite some time now. Air Deccan came and announced unbelievable fares @ Rs. 700 inclusive of taxes though for a limited no. of seats. But, the blow had been stuck. Jet Airways, Air Sahara and Indian Airlines had already been hard pressed due to Apex fares scheme which though enabled them to have higher capacity but the revenues were strained. Though in it’s filing of the Red Herring Prospectus Jet Airways revenues have increased on a CAGR of around 50 %.
The Indian Govt. under Mr. Praful Patel, the Civil Aviation Minister announced an ‘Open Sky Policy’ which means that the Indian Skies are finally opening up to competition. So how ‘open’ will Indian skies will become is a big question mark as of now as there are too many nitty gritty yet to be worked upon. The biggest question is are domestic airlines capable of taking on competition from foreign airlines. It’s a different ball game to be the dominant player in a market where you can count your competitors on one hand. But with many business houses now keen to jump onto the no frills low cost airlines business the heat is going to be intense and also the fact that now even foreign airlines will be able to compete makes for an interesting scenario in the Indian Civil Aviation sector.
Mr. Patel insists that the govt. wants to have a level playing field. But, critics are of the view that the policy favours players like Jet and Sahara as they have more than 6 years of flying experience a major criterion for getting the nod for flying out of India which is where higher revenues lie. Critics say that the PSU Airlines namely Air India and Indian Airlines have not purchased any new fleet in the last decade and this would be a major hurdle for them. It is often said that govt owned airlines are competing not only with their hands tied behind their backs but also with their shoe laces tied. They are forced to fly on unprofitable routes primarily because of the Govt.’s stake.
From liquor baron Vijay Mallya to Bombay Dyeing’s Wadias everyone wants a stake in the Indian skies. So, the question that arises in the minds is whether there is enough space in the airline industry for an influx of new airlines. The Govt. does not want a repeat of the early 90’s when except for Jet all other private airlines went kaput. Also, is the domestic airline market big enough to accommodate such a huge increase in terms of seat capacity that will soon be available. Industry analysts are of the view that the domestic market is on a high growth phase and there is time before saturation levels are reached. The biggest factor still remains the price and affordability. How low would the prices be? Whether they would be sustainable and most importantly profitable for the airlines. In a price sensitive nation like India, price would be biggest factor that would determine who emerges as the dominant player.
The other aspect of the ‘new’ Civil Aviation policy is the proposal to privatize the process of modernization of the four major airports where the management of the airports would be entrusted to private players. This is said to be a ‘priority’ for the Govt. but there has been no urgency being shown on this front. Also, the cost of landing at the airports in India is one of the most costliest in the world. There has been no mention on this. Also, the Govt. has not come up with any plans to augment the existing capacity of airports and with an increase in the number of airlines that will be flying from, into and within India the already fragile infrastructure at these airports will be strained. Already when there are more than 6 airlines landing at the Mumbai International Airport, it causes some amount of discomfort.
Despite all these negatives the biggest positive of this civil aviation policy is the fact that there will be cut-throat competition and this will certainly improve the efficiency of the industry by a certain extent and the biggest beneficiary would undoubtedly be the customers. The scenario would be extremely good for the ordinary consumer as battles will be wages over Indian skies and Indians would as the Air Deccan punchline says, can ‘Simplifly’.
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