| SINGAPORE/NEW DELHI
SINGAPORE/NEW DELHI Aug 14 A decade after
low-cost carriers led India's air travel boom, full-service
airlines are gearing up for a battle for premium passengers that
only the deep-pocketed are likely to win.
Flag carrier Air India, which has only offered premium
travel, will face more competition from second-largest airline
Jet Airways, which on Monday said it would ditch its budget unit
and focus on the full-service market amid mounting losses.
The carriers are also bracing for Vistara, a venture between
Singapore Airlines Ltd and conglomerate Tata Sons Ltd
which will start flying in October.
The competition in the full-service sector is heating up
with no guarantees there will be enough passengers willing to
pay higher prices to sustain three carriers in a market where
low-fares dominate and where airlines struggle to make a profit.
"There will be a bloodbath. The competition is only going to
become more intense," said Amber Dubey, head of Aerospace and
Defense at consultancy KPMG.
A large, and increasingly affluent, population make India
one of the world's most attractive air travel markets. Passenger
numbers have risen 13 percent a year since 2003, a rate
analysts say outpaces most other markets.
But intense competition and higher operating costs mean
Indian airlines lost a combined $1.77 billion last year and are
projected to lose up to $1.4 billion this year, according to
data from industry consultancy Centre for Aviation (CAPA).
That compares with the $18 billion profit airlines globally
are expected to make this year, up from last year's $10.3
billion, International Air Transport Association data shows.
Low-cost carriers like Indigo, SpiceJet and GoAir have
cornered two thirds of the domestic market, and were joined this
year by a joint venture between Malaysia's AirAsia Bhd
and Tata Sons Ltd.
Full-service carriers compete for the remainder one-third
domestically, and with foreign carriers like Emirates, Qatar
Airways, British Airways, Singapore Airlines (SIA) and Lufthansa
on international routes.
Increasingly, they must also battle each other.
"There is demand at the upper end in India but it is nothing
like the demand at the bottom end," said Kapil Kaul, chief
executive for South Asia at CAPA. "You now have three airlines
competing for the same customer."
Air India is the most unprofitable carrier, but is also the
one most likely to survive the battle for passengers because of
The carrier, which received a $5.8 billion state bail-out in
2012, halved its operating losses in the 2013-2014 fiscal year
to 21.2 billion rupees ($353 million) by restructuring its
operations over several years and cutting costs.
It retired older aircraft and introduced fuel-efficient
planes such as the Boeing 787, and plans to add new
Airbus A320s and Boeing 737s.
Air India also finally joined the Star Alliance group of
carriers this year, allowing it to leverage the network of, and
traffic feed from, partners such as Lufthansa, United Airlines
and All Nippon Airways.
"The Indian government owns us. Just like any other
promoter, they will pump money into their investment," said a
senior Air India executive who did not want to be named as he
was not authorised to speak to the media.
"Do you think the government will allow us to fail after
investing so much money?" he added.
Jet Airways, which has yet to turn a profit since 2007, said
it would focus solely on full-service to gain market share. It
barely survived a battle with Kingfisher Airlines, which folded
in 2012, and its balance sheet is shored up by Abu Dhabi's
Etihad Airways, which bought a 24 percent stake this year.
"It is impossible to keep a foot in both markets when there
are strong competitors on both ends," said a Jet executive who
declined to be named as he was not authorised to speak to the
Etihad offers Jet an extensive international network via Abu
Dhabi. Jet will receive its first 787s from 2015 and is likely
to order new 737s to replace its existing ones. It aims to
return to profitability by 2017.
Executives at the SIA-Tata venture Vistara say the
full-service airline is focusing on a "neglected" sector in
Growth, however, has been faster at the low-cost segment
compared to full service airlines and government policies to
build airports in less-developed cities, where passengers tend
to be more price-conscious, will favour budget carriers.
CAPA data shows that compounded annual passenger numbers
were up 30.9 percent at IndiGo, 20.6 percent SpiceJet and 19.5
percent at GoAir between 2008 and this year, outpacing the
single-digit growth at Jet and Air India.
The intense competition across all sectors will likely
result in fewer airlines in India, analysts say.
"We expect consolidation over the next 12-18 months. At the
current level of air travel penetration, the Indian market can
only support at the most four strong pan-Indian airlines,"
KPMG's Dubey said.
(Additional reporting by Sumeet Chatterjee in MUMBAI; Editing
by Miral Fahmy)