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March 04, 2005

Lemming mentality in the airline sector?

At a time when it looks like every Ram, Shyam and Hari has plans for launching an airline in India, InterGlobe Enterprises, one of the first companies to get clearance from the government to start an airline, has decided to ground its plans. InterGlobe's Managing Director Rahul Bhatia, in an interview to Business Standard, cited "excess capacity generated in the market" as the reason.
In the last few months India has seen a sudden upsurge in the number of airlines planning to start services. Various prediction by airline industry point out that about 13 airlines would start operations over the next 12 to 18 months. And most of them will follow a low-cost no-frill model.

The airlines that are expected to start services are Air One, Indus Air, Royal Air, East West, Wadia, Kingfisher, Visa, Yamuna, Air India Express and the low cost service by Alliance Air. Airlines like Royal Air and Kingfisher are currently in the process of acquiring aircraft and are expected to start operations soon.

It is also worth noting that some of the existing players have been pressing the government to raise the entry barrier in the airline sector so that non-serious players do not make an entry into the sector.

As per the present norms, an airline required five aircraft and a minimum paid up equity of Rs 30 crore (Rs 300 million) to get a license to operate.

Airlines like Jet Airways and Air Sahara has been petitioning the government for raising the entry level barriers by raising the minimum paid up equity to Rs 250 crore (Rs 2.5 billion).

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.