Indianomics
A blog on Indian Economics and personal interests of its authors

Sudden buzz in Aviation Industry

Aircraft at Aero Bridge
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I was planning for a week-long trip this November, and my plans started falling apart after I saw the airline ticket prices going up rapidly. The day (23rd Sept) I checked the fares, return tickets for two adults from BOM (Mumbai) to IXB (Bagdogara) via DEL (Delhi) travelling in November on  Air India (1 stop with the lowest layover time) costed Rs. 19,601. The fare for the same flight went up to Rs. 22,408  the very next day. On 3rd day, the fare again changed to Rs. 24,402. Today, the same flight tickets would cost me Rs.36,282.

Woot! That’s a rock solid increase of Rs. 16,681 in ticket fare in just 4 days for a flight trip planned almost 2 months in advance. I had to wait for my salary to come to book trip tickets for this huge amount, and it now does not make any sense. As you might assume, I backed off from booking the ticket.

In other news, I read that DGCA is calling CEOs of all Airlines in India to discuss about the sudden changes in pricing and to have some pricing control. After seeing such a hike in 4 days, I really hope they included Air India to that list as well.

And for a record, Air India has the cheapest flight to this location (and many others), cheaper even than all other Low Cost airlines and Jet, the only other full service airliner. With the depreciating value of Rupee and soaring oil prices, the Aviation industry is deeply affected and is compelled to raise fares. This affected their volumes, further pushing their bottom line.

This got me thinking about what we really need in India is probably coming soon. Even more competition.

I am sure many of you already have been reading news with updates coming almost every day. In a very surprising move, Tata Sons applied for NOC to start a Full Service airline with Singapore Airlines (SIA) as its partner in a joint-venture, with Tata’s holding 51% and SIA holding 49%. This is not the first time Tata and SIA are working together. Reportedly, their attempt to create an airline in 2001 was stalled due to immense lobbying by a rival airline and Ratan Tata himself claimed that he refused to pay a bribe.

Not too long ago, earlier in February, Air Asia announced their intent to start Air Asia India as a low-cost airline. And its partners are Telstra Tradeplace (widely reported in the media as the company of Arun Bhatia, father of Lakshmi Mittal’s son-in-law) holding 21% and Tata Sons holding a 30% stake.

Now that is a perfect googly from Tatas. Even though Arun Bhatia claimed that Tata’s ethics were questionable since he was unaware of the development and voicing out that Tata’s sell their stake in Air Asia India. Arun probably was eyeing Tata’s 30% stake that he could buy and become the majority partner (presumably money from Lakshmi Mittal’s kitty?)

However things are in good shape between Ratan Tata and Tony Fernandes, the CEO of Malaysian origin airline Air Asia and both have seemingly been reported to be on good terms. Everyone’s guess is Tata made Tony aware about their conversations with SIA.

With Kingfisher’s (KFA) demise and uncertainty around its revival, India lost two Airlines – Kingfisher itself and Air Deccan, the airline Vijay Mallya wrestled from Captain Gopinath, becoming a fake prey instead of being the predator to gain rights to fly international. After this fiasco, I have a feeling that mandatory 5 years of domestic operations for any airline is needed before they fly international.

Coming back to the story, this development brings in good news. For one, existing KFA employees might be able to look at a new company to work for. But for us as customers, this means competition and lower fares.

Air Asia India received NOC from Ministry of Civil Aviation very recently, and may start operations before year-end, if everything goes well with their application for Flying Licence with DGCA. They already have hired 200 employees, and with the NOC from Government, will be able to import 3 Airbus planes to start their services.

Tata SIA Airlines (name of the new airline as it is rumored to be) may start their operations as Full Service airline (like Jet and Air India)  in about a year from now. Even though we know in today’s scenario, there is virtually little difference in pricing of Full Service or Low Cost airlines. In Flight Service, Quality, On board Food separates them, but hardly the fare.

With the inclusion of these two new airlines, and a hopeful revival of Kingfisher Airlines would really make the Indian Aviation section abuzz.

All that matters is how all of this is helping consumers. With increased awareness and a better lifestyle choices made by today’s youth, lower costs of air travel will give them another reason to fly.

Lets fly. Simply, fly.

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