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Flying into a new era

Surajeet Das Gupta | April 10, 2004

It isn't the world's best-known airline. But last month, new kid on the block, Myanmar Airways International, made a breathtaking offer to Indian travellers. As an inaugural offer for three days, travellers could zip across to Bangkok and back to Delhi for only Rs 6,499.

This is a mere hint of the shooting match that's breaking out over Indian skies. As the Government loosens its hold on the aviation industry in a variety of ways, prices are falling and this could be a season of joy for the Indian traveller.

Why is the aviation industry wooing travellers with a mix of cheap prices and special offers? What has happened is that the Government has done an about turn in the last two years on civil aviation and is signing scores of bilaterals allowing foreign airlines to fly into India. Also, it has declared an 'open skies' policy and ruled that any South East Asian airline that wants to fly to India can do so.

What's the result of all these changes? Firstly, small-airlines and newcomers like Myanmar, Etihad, Air Arabia and Vietnam Airlines are taking advantage of the new rules and scrambling into the skies. More importantly, the altered rules have also let biggies like Thai Airways, Singapore Airlines, Malaysian and emerging key player SriLankan Airlines operate many more flights to this country if they want to.

Even bigger changes could be on the way in the coming months. A host of low-cost airlines like AirAsia and Tiger Air (a low-cost airline promoted by SIA) are now taking to the skies in South East Asia. Under the 'open skies' rules they could soon start flying to India. One airline has even said that it is looking at routes that are up to five hours flying time from places like Singapore. QED India.

Inevitably, the Indian airlines have realised that they must keep pace with the new changes and are adding to the crowd in the skies. Air-India, for instance, has started flying from Lucknow to Dubai and is planning to add flights to Singapore and Kuala Lumpur.

Also, Air-India says it will start a new, low-cost airline in a few months that will fly to West Asian and South East Asian destinations. Air-India spokesman Jitendra Bhargava says a committee report on the issue is due on April 21. Says Bhargava: "Our attempt is to ensure that we expand our market and maintain our market share."

If all this isn't enough, there's another seismic change that has stirred up the Indian aviation scenario in the last few months. Private Indian airlines like Jet and Air Sahara have now been given the go ahead by the control tower to fly to neighbouring international destinations like Colombo and Dhaka.

It isn't tough to figure out the result of all this liberaliation: A lot more airline seats in search of passengers.

How stiff is the new competition? Take a look at the numbers. In 2000 airlines in West Asia, South East Asia and Sri Lanka were allowed 36,294 seats a week from India. That has almost doubled to 69,257 weekly.

Now, those numbers are set to rise even further. Industry experts reckon that an additional capacity of between 3,000 and 4,000 seats per week will be added in the coming months to South East Asia. Similarly, 3,000 to 4,000 seats will be added to West Asia.

In Sri Lanka the number of seats on offer has been even sharper: from 5,500 a week to over 7,500, with the entry of domestic private sector Indian carriers in the market. In the next few months, it is expected to rise to 9,000 a week with SriLankan Airlines launching more flights.

Inevitably, each airline has landed in India with its own gameplan on how to crack the giant market. Myanmar, ambitiously, plans to take on the more established airlines. Says Ankur Bhatia, CEO of the Bird Group, which is the airline's GSA: "Our strategy is to become the gateway to the east for north Indian travellers."

That's similar to what SriLankan Airlines has already done in the south region. The Emirates-controlled airline has so far picked up 70 per cent of its passengers from south Indian destinations. Now, it wants to spread its wings and establish itself across the country. The airline is planning to hike capacity dramatically from 50 flights a week from nine destinations to 70 by the end of this financial year.

Says Chandana De Silva, official spokesperson, SriLankan Airlines: "Our immediate attempt is to have a daily flight from all the cities we operate (like Delhi, where it plans to introduce three more flights, and Mumbai another two). That will reduce our imbalance and the north/west to south ratio will become 50-50."

But the foreign carrier is not going to have it easy. It faces the onslaught of Indian private sector carriers. Says U K Bose, CEO, Air Sahara, which flies seven flights a week into the island country: "We are getting 500 to 600 passengers one way every week and their load is picking up." Air Sahara has also tied up with Cathay Pacific to take passengers onward from Colombo to the Far East at special rates.

Don't think the established players are giving up without a fight. SIA, for instance, has upped its capacity by around 14 per cent from around 10,200 in February to 11,670. That includes an additional flight to Ahmedabad and the introduction of two more flights from Mumbai. Says B K Ong, general manager of SIA in India: "We expect a growth of 10 per cent to 15 per cent out of India."

Ong, of course, says that SIA operates at the higher end of the market and if established carriers come with cheap fares it would impact it. Says Ong: "We will take appropriate marketing actions to prevent them from eroding our market share."

Another fight has broken out in the West Asian sector where a host of newcomers are challenging the domination of Emirates, and domestic carriers like Indian Airlines and Air-India.

For a start, there's the new Abu Dhabi carrier Etihad Airways, which has applied for 10 flights a week into India (seven to Mumbai and three to Delhi). Says an Etihad Airways spokesperson: "We hope to start our services in Mumbai from August 31. That is a tentative date."

The Etihad spokesman also says it is planning to tie up with Jet Airways for onward journey in the country (a Jet Airways spokesperson however says no agreement has been signed).

Also ready to fly into India is discount airline Air Arabia -- the Sharjah-based low-cost airline that has also applied for routes in Kerala and other locations. Industry experts say Air Arabia's aggressive tariffs could start a price war that will hurt IA and A-I.

So why are foreign carriers rushing in? One reason is that they see a large growth market in India. Bookings from India have grown by 40 per cent this March over the same month last year, according to Amadeus, the international reservation system. And 70 per cent of this growth came from West Asia and the Far Eastern market.

Looking at the near future, forward bookings in May-June are up by between 15 per cent and 25 per cent over the last year according to Amadeus. The company forecasts that the number of Indians travelling abroad is likely to rise by 12 per cent during this calendar year. Passenger growth was negative during calendar 2003.

There are other reasons for long-term optimism in India. The world average for spending in travel and tourism as a percentage of GDP is 9 per cent to 10 per cent. In India it is barely 3 per cent. Says Balbir Mayal, president, Travel Agents Association of India "Despite the new capacity additions there is a gap of 10 per cent to 15 per cent in capacity in both the eastern and West Asian routes. So there is a large market waiting to be tapped."

One airline betting heavily on India is SriLankan. The foreign carrier has a two-pronged strategy for India. First it wants to persuade east-bound Indian travellers to transit through Colombo. Also, it wants to woo upmarket Indian tourists to Sri Lanka.

To attract Indians travelling to the Far East (about 50 per cent of its passengers according to the airline) SriLankan is offering value-for-money packages like Rs 17,000 for a Delhi-Colombo-Bangkok trip with four days of hotels and breakfast thrown in. You'd pay the same if you went directly to Bangkok -- without the hotel stay.

But the airline is also creating attractive packages to lure upper crust Indian holidaymakers to Sri Lanka. In October, for instance, the carrier plans to organise a golfing package for Indians. Also being worked out is an adventure package and a package for casino-haunting gamblers. Colombo has 15 casinos and can compete with Nepal in this business.

Says SriLankan's De Silva: "We are looking at the upper-end Indian customer. Our aim is to ensure that an Indian tourist who spends around $30 to $40 a day per head should spend double that amount."

But that's only for starters. SriLankan is going further and for the well-heeled it will offer nine-seater planes that will take tourists from Colombo to places like Kandy or Bentota. The price of a one-way ticket will be about $100. Alternatively, the plane will be leased for $900 a day. Says De Silva: "Travellers can actually do a three-hour journey in 25 minutes."

Myanmar, on the other hand, is aiming squarely at price-conscious travellers -- at least, for now. Says Bhatia: "At the moment our prices to Bangkok will be cheaper. But eventually we hope Myanmar itself will become a tourist destination."

As part of that plan Myanmar Airways has already tied up with major tour operators to include Myanmar on their itinerary. The Myanmar Tourism Authority is also planning a major blitzkrieg to sell the county as an exotic destination. Myanmar has an ambitious goal: to boost the number of Indian tourists from around 10,000 to 200,000 in the next three to five years.

Are the airlines overestimating the potential of the Indian market? Many aviation experts say excess capacity will lead to a bitter price war in many routes, and losses for airlines. That's clearly reflected in the Sri Lankan market -- where extra capacity is chasing fewer travellers. Admits De Silva: "Yes, there is pressure on tariffs and we might add value to our product to take on competition. But they should stabilise after a while."

The Indian carriers are less sanguine. Says one senior executive of the country's national carrier: "Sri Lanka is not such a hot destination to justify over 64 flights a week. Carriers like SriLankan Airlines are picking up Indian travellers cheaply as fillers for onward destinations at rock bottom prices. That will harm business viability for everyone."

Will the domestic national carriers be the worst hit in the emerging scenario? Currently, Air-India and Indian Airlines have about a 30 per cent share of the market. But they don't have the planes to cater to growing demand. The national carriers reckon they will lose around Rs 1,250 crore (Rs 12.5 billion) if they don't take advantage of the additional flights they've been allowed in the last few months because they don't have enough planes.

Secondly, they point out that the government has liberally dished out bilaterals to city states and small countries like Singapore, Sri Lanka and the United Arab Emirates. Airlines from these places use their bilaterals to carry Indian passengers to onward destinations (in airline parlance this is called the misuse of the 5th and 6th freedoms) Indian carriers can't do that so they lose out.

Says a senior executive of a national carrier: "The Government has given over 32,000 additional seats a week in the last three years to foreign carriers in the east, West Asia and Sri Lanka in the name of encouraging tourism. But they constitute only 7 per cent of the total international travellers into India. So while they are taking away our passengers, people from these countries are not coming into India."

Don't think the national carriers have given up the fight. IA, for instance, has an 11 per cent market share of international travellers from India. This week it announced that it will be leasing six new A-320s. Besides that it has already decided to lease four other aircraft a few months ago.

The additional capacity will probably be deployed both on domestic and international routes. Says an IA source: "We will deploy capacity in international routes where there is competition and we don't have capacity." This would mainly be West Asia, the Far East and Nepal.

It will be quite a scrap. The foreign carriers are just getting ready for the real battle to begin. And, as it does, Indian passengers should hopefully be laughing all the way to their cheaper-to-reach destinations.


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