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Last week, liquor baron Vijay Mallya descended flamboyantly from the emergency door on to the wings of an A-320 aircraft, waving the Indian flag.
A short while later, the bohemian baron, who was in Toulouse to take delivery of the first aircraft for Kingfisher Airlines, was joined by airhostesses in designer red skirts before a cheering audience.
And next week, on its maiden Bangalore-Mumbai flight, celebrity guests Yana Gupta or Vidisha Pavate, among others, might just occupy the seat next to yours.
It's time to fasten your seat belts and say goodbye to train journeys, as a surprisingly large number of airlines prepare to slug it out in the skies.
Eighteen months ago, the blitzkrieg was started by Air Deccan, which began operations with rock bottom airfares. But even Air Deccan's startlingly low fares seem about to take a hit with newer low-cost carriers bracing up to challenge its domination.
And they're forcing scheduled carriers like Air Sahara, Jet Airways [Get Quote] and Indian Airlines to rework their strategies for a fresh battle in the skies.
Already, Kingfisher Airlines has set an ambitious target, hoping to grab 5 per cent of the domestic air travel market and carry over 1 million passengers in 12 months.
Says an optimistic Vijay Mallya, chairman: "By 2010, we want to be the largest private airline in the country. We have already placed orders for 30 aircraft."
Taking Air Deccan head on is Delhi-based SpiceJet, which will begin operations by the end of this month with three new Boeing aircraft. It will concentrate on just a few routes (including the metros of Delhi and Mumbai).
Says Ajay Singh, director and part-promoter with the UK-based Malwood Group, "We have learnt from Air Deccan's mistake of spreading too thin across the country. Instead, we will stress on punctuality and reliability, and look at only a few destinations initially, but at the same fares as Air Deccan."
Singh's toughest competition could come from Nusli Wadia-promoted Go Airlines, due to start in September (leasing 20 aircraft over two years).
Boasts Jeh Wadia, director: " We will be the lowest fare airline in India." And Nira Radia's Magic Air is planning a winter launch, and is negotiating to lease 10 aircraft to fly to 15 destinations.
Nor are established players sitting pretty as the new domestic carriers prepare for the inevitable traffic jams in the sky. After all, industry experts reckon average fares will drop by 30 per cent.
Already, Air Deccan has fired the first salvo by dropping its cheapest fare to Re 1 (from Rs 500) on all routes. But that might not be enough as Go Airlines's Wadia has picked up the same gauntlet: "We will have more seats at Re 1 than Air Deccan at Rs 500," Jeh Wadia has claimed."
How will he manage the financials? "Forget the details," he says, "we're in the business of making money."
Is Air Deccan's low-cost model under threat? The airline had launched the offensive with a hub and spoke route strategy that included linking smaller towns with metros, as well as intra-metro connections.
Experts feel that this was responsible for its higher costs. Says one: "Its inventory and maintenance cost is higher because it has both ATRs and Airbus aircraft -- low-cost carriers never do that. As a result, its cost per seat/km on an ATR is two-and-a-half times higher than it should be."
But R Gopinath, CEO, thinks otherwise. "In India, if you want the masses to travel, you have to connect small towns and cities to the metros. I have a twin-cost model so my ATR fares are 60 per cent higher than on Airbus routes. As a result, I am not losing money."
Aware that he needs more fleet to maintain his domination, Gopinath has signed up for 32 new Airbus and ATR aircraft each, six each of which will join his fleet by March 2006.
Because they are new aircraft, he hopes it will help him to trim maintenance costs by15-20 per cent, apart from pushing up fleet utilisation.
Gopinath is now concentrating on increasing frequencies on existing routes. This will resolve the sticky issue of schedule reliability. And he is aiming to triple the number of Air Deccan passengers from the current 1 million to 3 million by end-2005.
Even state owned airlines are feeling the heat. The result: Indian Airlines's subsidiary Alliance Air is to convert into a low-cost carrier.
Says Praful Patel, India's minister for civil aviation, "We are looking at replicating the model of Air India Express in the domestic market by converting Alliance Air into a low-cost model. The business plan will be drawn up once Alliance Air's aircraft acquisition plan is completed."
But given the spurt in airlines, is there sufficient market for them to tap into? Nira Radia, CEO of Magic Air seems to think so. "There is easily space for six-eight carriers in the 300-million middle-class market," she says, "after which you might have some consolidation."
Kingfisher contends that the air travel market of 18 million is growing at 20-25 per cent annually -- and it is these new customers it hopes to tap.
SpiceJet's Singh is intent on wooing train travellers. Daily, 800,000 passengers travel by first and second-class AC (as opposed to only 40,000 seats per day available by air).
These passengers are SpiceJet's first port of call. "Cost is the key reason why people are not flying," Singh asserts. "We will see the same revolution in aviation that hit the mobile services industry after tariffs fell."
There is clear consensus among the new kids on the block about the large size of the untapped market. But where they lack consensus is on the best business model to follow.
SpiceJet is counting on the low-cost model used by international giants Ryan Air and Air Asia, and is offering only economy class configuration, pushing in more seats (189 instead of 145/150), and depending on the internet for bookings to shave off agent and distribution margins.
It is concentrating on only a few routes, offering increased frequencies, and will have back-ups to maintain schedules. It aims to minimise the number of aircraft flying hours to 10-11 daily.
"We want to ensure minimum cancellations, which is why we are creating a slack in the time that an aircraft remains airborne," says Singh.
SpiceJet will also allow passengers to select seats on the net, and is negotiating with corporates to sign bulk deals at discounted rates.
Nor does SpiceJet anticipate any problems in breaking even on its business model. With its cost of operating a flight between Delhi and Mumbai pegged at Rs 252,000-273,000, at an average ticket cost of Rs 2,370-2,520 it should break even on a sale of 100-110 seats. In contrast, scheduled airlines spend over Rs 420,000 on a similar flight, and have less seats to play with.
But how is SpiceJet trimming costs? One, by standardising aircraft (Boeing 737-800) instead of going in for a different mix (as in the case of Air Deccan), which will result in maintenance, training and inventory savings of up to 20 per cent.
Two, the company hopes to save 12 per cent on distribution and travel agency costs by moving quickly towards Internet bookings (agents get 5 per cent commission). Three, it is scaling down personnel cost: for every 180 employees per aircraft on a scheduled aircraft, Spice will have only 110.
But many carriers say that the costs of low-cost carriers could drop dramatically, and it might make sense to wait and watch rather than sign large lease and acquisition deals with Boeing and Airbus at current rates.
That is because leasing rentals (over 20 per cent of an airline's cost), which have been firming up in the last months due to global demand, could tumble.
The reason: several US airline companies are in trouble and might be forced to close or announce bankruptcy. Says a senior executive of an airline company: "You might have hundreds of aircraft up for sale in the market, and lease rentals will drop by half." New players who have not signed on aircraft leases would then have an edge over others who have.
But Kingfisher Airlines argues that it is not viable to offer cheap fares anyway. Accordingly, Kingfisher is mid-priced. Says Alex Wilcox, CEO, "The infrastructure and fuel costs in India are extremely high, which is why we don't see a revenue model for a no-frills airline."
No wonder Wilcox and his team are working to save costs innovatively: Kingfisher aircraft will have a seating capacity of 174, which is higher than those of the scheduled airlines; it will fly 11 hours (compared to nine hours for Indian Airlines); and it is outsourcing maintenance as well as ground support to IA for Rs 140 crore (Rs 1.4 billion) annually. It is also pegging personnel to 71 for each aircraft.
Kingfisher's passengers might have to fork out more than those of SpiceJet, Air Deccan and so on, but they will enjoy special service on board, such as personal video screens for every seat with a choice of five video and 10 audio channels.
But what of the existing private airlines? What are they making of the new carriers crowding the skies? Are they gearing up for battle? Or do they anticipate the newbies (like some of their predecessors in the nineties) will be forced to shut shop?
Air Sahara CEO Rono Dutta, for one, doesn't seem too worried, though he is working at cutting down variable costs by 20 per cent. He admits that though loads may not be affected, revenue yields could come down because of the lower costs offered by the low-cost rivals.
Says Dutta, "Fuel constitutes 40 per cent of the cost; you don't have much leeway in cutting labour cost; so what these carriers are offering is a lower price by stripping down the product, and not a low-cost model."
On its part, Sahara is concentrating on improving turnaround time, increasing the utilisation of the aircraft by at least 30 minutes, and creating a hub in Hyderabad to address the southern market.
It has earmarked 25-30 per cent of its tickets at discounted fares, to be on par with the average fares of low-cost airlines. That apart, it will cater to the needs of business travellers by offering more frequencies on key routes.
That will be possible with the induction of four new aircraft for the skies, even as it moves to international routes.
The top brass of market leader Indian Airlines will not come on record, but executives believe the low-cost model will take its toll sooner rather than later (even as the aviation minister has announced it will convert Alliance Air into a low-cost carrier).
Says a senior executive of Indian Airlines: "Fifty per cent of costs are fixed on account of fuel and navigation, and fuel prices have hit the roof. Our utilisation of aircraft is in no way very different, considering we have a larger fleet. So, how can their costs be dramatically lower?"
Therefore, taking advantage of the fact that the new, low-cost carriers will have limited frequencies, IA is cutting fares on the flights that will leave near or at the same time as those of the low cost airlines.
Says an IA executive: "The whole idea of introducing Fly Select was to ensure that our passengers do not switch to the competition during those time slots."
Whether these carriers will remain buoyant or crashland, one thing's for sure: Indian air passengers have never had a better time, or a better chance, of flying less expensive fares before.
Know your airlines
Air Deccan: Beginning a new phase of fare wars with tickets for Re 1. Has set the model for most low-cost carriers, but competitors say it is suffering on account of frequently cancelled services.
Alliance Air: Don't look now, but IA's small town sibling hopes to metamorphose into a low-cost carrier by year-end. But being a legacy carrier, it could be difficult to do so.
Go Airlines: To take off in September, it's promising the lowest fares in the industry. Time will tell.
Indian Airlines: The state-owned carrier remains a market leader and has ordered a new fleet. But can it manage its costs and service standards?
Jet Airways: Definitely the business executive's preferred choice -- don't look for discounts though. Is now aggressively going international.
Kingfisher Airlines: A mid-priced carrier that bears its promoter's personality, it could appeal to younger age groups and frequent travellers.
Magic Air: A low-cost entrant (consisting of ex-Malaysian Airlines employees), it believes there's room for more.
Sahara Airlines: It hasn't faulted on deliveries yet -- but is gearing up for competition by reducing its costs.
SpiceJet: Originally Modiluft, it's aiming for Air Deccan's jugular by unleashing a fierce price war in the cheap ticket, no-frills segment. Will start operations in end-May, and is hoping to build a reputation for punctuality and reliability.
A PRICE WAR is inevitable, especially given that most new airlines are trying to woo new business and not poach on existing markets.
This has fuelled speculation that Air Deccan, already with the lowest fares, could slash average prices by another 20 per cent, to bring the average ticket price on par with second class AC train travel.
And that's where the bloodbath will occur, as Spice Jet, Magic Air and Go Airlines will be joined by Alliance Air to take on Air Deccan on its own turf.
Sahara too will offer a chunk of its tickets at the same, low price on "discounted" tariffs. Kingfisher's strategy is aimed at pricing 20 per cent below normal scheduled airline economy fares.
A Delhi-Mumbai ticket, therefore, would cost in the region of Rs 6,000, twice the rate of what the low-cost carriers would offer, but with mod cons they don't have, and the flamboyance of an airline that aims at the surprise factor as a great pull.
While Jet Air's plans in this market are not known, Indian Airlines's Bumper Saver Scheme is a big draw among frequent/business travelers -- for Rs 65,000 a passenger gets 16 coupons (tickets) so that the average fare works out to Rs 4,000 -- not bad going for what's still considered a premium product in the domestic market.Additional reporting: Bipin Chandra in New Delhi and Nandini Lakshman in Mumbai
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