The two international stations in India

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The final challenge is infrastructure. Given the existing facilities at Indian airports, with Jet & NACIL owning up to 80% of overnight parking bays in Delhi & Mumbai (the two international stations in India), other players will have to wait before they can start receiving additional wide-body, long distance aircrafts from Boeing and Airbus. With lack of infrastructure in Indian airports, players are incurring huge losses and are unable to expand their scope of services.

Further, Indian carriers deploy 355 aircrafts on domestic routes presently. With another 195 aircrafts to be received by 2011, the total will touch 550. With total domestic passenger count touching 78.4 million as per 4Ps B&M projections (refer Figure 3; the figure being 78.8 million as per CAPA), footfalls are clearly not enough for airlines to make profitability on just domestic routes. Moreover, with average prices having risen by 18% over last year, this passenger volume prediction is based on an optimistic approach, which makes it all the more dangerous for domestic airlines’ financial health.

Mhatre explains this situation as follows, “Considering current capacities that domestic carriers are building up, I feel we would be in a situation where capacity will exceed demand if players do not fly international.” The picture appears prettier on the international front where there are fewer players and the forecasted traffic growth of 15% till 2010 means that passenger count will touch about 22.1 million as per 4Ps B&M estimations (refer Figure 3; 25 million as per CAPA) – clearly enough for ensuring profitability on international routes. Even Surbhi Chawla, Aviation Analyst, Angel Trade confirms, “The average yield per passenger for an airline in the domestic sector, whether budget or full-service is about Rs.2,000-2,700. In the international sector, the average yield works out to about Rs.20,000-25,000 per passenger. In a highly competitive environment, where domestic full-service carriers have been competing for market share with budget carriers, it makes great sense for them to fly on international routes.”

Then, there is of course the competitive onslaught of other LCCs, which ply on international routes, but then as experts feel, there is enough room for everyone as far as international skies are concerned. Hence, LCCs as a threat factor can be ignored for now. Mhatre feels that, “LCCs playing on international routes would not prove challenging because there is enough room for everyone. On international routes, LCCs and Full Service Carriers can peacefully co-exist.”

But the $4 billion question still persists. Should investors part with their hard earned moolah to fund the over reaching ambitions of domestic carriers who are already in the red? Perhaps they could refuse, but then domestic carriers are an integral part of India’s economic development; they just have to mend their ways, or rather bend their planes… toward international skies that is.

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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