InterGlobe grounds budget airline

At a time when companies are falling over each other to set up an airline in the country, InterGlobe Enterprises, one of the first corporates to get clearance from the government to start an airline, has put its plans on hold.

"We have decided not to go ahead with the plan to start the airline for now," Rahul Bhatia, managing director, InterGlobe Enterprises, said in New Delhi on Thursday.

The government gave an in-principle clearance to InterGlobe Enterprises in April 2004 to start operations -- way ahead of many companies that are planning to enter the airline business in the country at present.

According to Bhatia, the company has decided to put its plans on hold as it thinks that there is excess capacity generated in the market as a result of the launch of a number of airlines.

"The excess capacity is the reason. When we decided to start the business there were not many players. But the situation is not the same now," he pointed out.

When asked if the company had completely shelved its plans to start the airline, he said, "It is shelved for now. We are not sure whether we will take a re-look at it or not."

The domestic aviation sector is on an upswing with the aviation sector projected to grow at over 25 per cent for the next few years. The domestic passenger traffic, in December 2004 touched 3.95 million from 3.10 million in December 2003, registering an increase of 27.2 per cent.

In the last few months India has seen a sudden upsurge in the number of airlines planning to start services.  Various prediction by airline industry point out that about 13 airlines would start operations over the next 12 to 18 months. And most of them will follow a low-cost no-frill model.

The airlines that are expected to start services are Air One, Indus Air, Royal Air, East West, Wadia, Kingfisher, Visa, Yamuna, Air India Express and the low cost service by Alliance Air. Airlines like Royal Air and Kingfisher are currently in the process of acquiring aircraft and are expected to start operations soon.

It is also worth noting that some of the existing players have been pressing the government to raise the entry barrier in the airline sector so that non-serious players do not make an entry into the sector.

As per the present norms, an airline required five aircraft and a minimum paid up equity of Rs 30 crore (Rs 300 million) to get a license to operate.

Airlines like Jet Airways and Air Sahara has been petitioning the government for raising the entry level barriers by raising the minimum paid up equity to Rs 250 crore (Rs 2.5 billion).