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February 15, 2005

Low cost airlines are (finally) taking off in India

Finally, flying is following mobile phones as something that has become truly affordable for the Great-Indian-Middle-Class.

Business Today (paid subscription required) has a feature on opportunities and challenges facing the new private players:
Last calendar, some 15 million Indians travelled by air. This year that figure could jump to 17 million. But according to the consultancy Centre for Asia-Pacific Aviation (CAPA), domestic passenger traffic could grow at a much faster rate in the coming years. CAPA puts that at a whopping 27 per cent per annum for the next five years (although the actual growth could be half of that). That means by 2010, there could be 60 million Indians travelling by air, resulting in an industry that's Rs 30,000-crore or $7-billion big...

...Globally, aviation is a notoriously unprofitable business. Even in the best of times, airline bottom lines are never too far from the red. Why? Like in India, both fixed costs (in terms of leases and government fees) and variable costs (fuel and landing costs) are high, which means even a slight drop in traffic can bleed an airline. So why are so many entrepreneurs rushing into the business in India? Opportunity. Just like mobile telephony took off in India after prices dropped, air travel could boom with higher incomes and falling fares. Consider Air Deccan: rivals were sceptical when the airline announced plans of flying people cheap. But today, it boasts of a passenger load factor (a measure of seat capacity utilisation) of a stunning 90 per cent. Most airlines consider themselves lucky if they manage 65 per cent.

The Times of India features short profiles of the low-cost players (including those which have already taken flight and some wannabe players) like Air Deccan, SpiceJet, Kingfisher Airlines, Indus Airways, Go Airways, Air One, Yamuna Airways and easyJet.

Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.