Buget airlines are increasing market share rapidly and changing the nature of the aviation game
The Changing Aviation Game
By Sucheta Dalal
In the last month, I flew SpiceJet and Kingfisher Airlines for the first time and was impressed by the quality of their service and efficiency. Of course, luck played a part in influencing me too, because both flights were bang on time, instead of the minimum half-hour delay that all air-travellers have got accustomed to.
As a frequent flyer on the strangely re-named ‘Indian’, I have rarely needed to experiment with other airlines. Several odd encounters with Jet and Sahara ensured that I wasn’t tempted either. All that has changed now. For those of us who do not travel Business Class at company expense, budget airlines are truly a big bonanza. And the galloping growth in this segment is beginning to make sense especially in a booming economy.
The first crop of budget players – Air Deccan, SpiceJet and Kingfisher have been followed by Go Air, Jagson Airlines and others. Add to this the fleet expansion by older airlines and it explains why India is the hottest market today for aircraft manufacturers. Indian companies have ordered a whopping $12 billion worth of aircraft.
In contrast with the hectic activity at the budget end the three full-service airlines are not doing so well. Both Indian and Jet introduced ‘check fares’ to compete with budget airlines, but since they are not flexible, market share of the budget airlines continues to grow. Indian, which was once a monopoly, is down to 25% of the market. And Jet Airways, which already has 50% of the market seemed headed for further dominance until its deal to acquire Air Sahara hit an air pocket.
The Jet Airways share price is down to its lowest level since listing (even as the Sensex touched an all-time high of 11,000) and although Jet says the merger deal will not fall through, there are plenty problems in the valuation which may drastically reduce the purchase price. Indications are that Jet wants the price to be dropped from around $450 million promised earlier to $272 million or lower.
This is because of new findings about ‘wet lease’ agreements for Sahara aircraft, re-allocation of space at the airport (the smaller airlines have demanded that Jet cannot automatically get the space allocated to Sahara, it will have to stand in queue for additional space), compensation of senior management and pilots of Sahara and over irrecoverable advances and other liabilities. The way things are headed, it seems as though Jet will have to run Sahara as a separate airline, which will involve higher marketing and advertising costs.
The budget airlines are also bound to see a shakeout, as quality becomes an important differentiator. Air Deccan, is planning a public issue in order to fund its ambitious expansion plans, maintain the current growth rate of 13 %and stay ahead of the pack. Will it succeed? That is a big question. Air Deccan has the advantage and goodwill of being the first entrant; it is the airline that allowed many Indians to fly for the first time by offering low fares and linking smaller cities. But will it retain this advantage?
Scores of angry complaints by Air Deccan indicate one common experience -- if your flight is on time, or only delayed, then you are very lucky and sing the airlines praises. But if there is a serious problem such as a five-hour delay or an abrupt cancellation (which happens frequently on Air Deccan), then you are hit by poor service quality and its utter lack of empathy.
First of all, anyone who travels by air needs to look at the fine print on service conditions. For instance, airline such as Indian have a condition that no refund will be given on lost tickets. Although this is an anachronism when the airline is issuing electronic ticket, the rules have not been changed. In fact, consumers who have fought this restrictive condition through the consumer courts have lost their case.
When it comes to budget airlines, the conditions are stricter. Full refunds are available only if the flight is delayed beyond five hours or cancelled. Since airlines do not provide food or sells snacks at inflated prices, delays cause a hole in a budget passenger’s pocket. Also, unlike full-service carriers, budget airlines only promise to fly you on a best-effort basis. This means that you should avoid budget airlines if you are flying out for a crucial business meeting or intend to catch connecting flights. The airline takes no responsibility to either provide you accommodation or put you on an alternative flight.
Also, there are no alternatives in many of the small town destinations that Air Deccan connects, until the budget airline market grows significantly. This means that sudden cancellations leave passengers truly stranded, because air or rail tickets are not easily available and even if they are, they involve a long and tedious journey.
Unfortunately, Air Deccan has little time for such complaints. When I spoke to Captain G.R.Gopinath in connection with a consumer complaint, what struck me is the utter lack of empathy. He was only focussed on the fact that Air Deccan has flown so many Indians for the first time ever and connected destinations which had not air link. He also blames delays and cancellations on the lack of infrastructure at smaller airports. We agree with everything Captain Gopinath says, including the fact that millions of people are thrilled at being able to fly when the service is faultless, but does it allow a service-provider to be arrogant and unsympathetic when things go wrong? After all, a customer cannot be over concerned about the airline’s problems; she expects value for her money or at least swift and polite handling when things go wrong.
As the budget airline market grows and new players enter the scene, it is this factor that will act as the big differentiator and dictate brand values. We will then see another shake-out that will only be to the benefit of consumers.
This article appeared in The Hindustan a Hindi language daily on Sunday, 26 March 2006.
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