It was impossible to buy a low cost ticket on an Asian carrier ten years ago, stated Tony Griffin, Senior Vice President, ASM – the World Route Development Consultants, at the Routes Asia 2013 Strategy Summit. “The reason being there were no Asian low cost carriers (LCC) in existence. It is quite staggering that in the year 2012 we have over 300 million seats available in the low cost segment in Asia alone. LCCs accommodate 50 per cent of the total air capacity in Asia,” he said, adding that even with the robust obvious potential of the Indian market, the industry is still going through a rough patch and it has become very hard to anticipate the future of LCCs in India.
Commenting on the current status and potential of low cost carriers in Asia, Neil Mills, CEO, Spicejet said, “It all comes down to cost, so how big a market can actually become is really dependent on how much you are charging the consumer to enjoy that part of the market. As long as the cost base, particularly in India, is high, the ability for us to stimulate more market is quite limited.” But he also believes that, across Asia, there is a huge opportunity for growth. “As long as we make our products cost effective we can surely make more people travel. In India over 50 per cent of the domestic market is actually LCCs. Over the last few years, value conscious consumers in India have clearly chosen to fly LCCs, and we will witness a substantial growth predominantly from this market,” he opined.
Quoting a famous economist, Giorgio De Roni, CEO, GoAir said, “In the long term, we are all dead.” He then stated that it is a possibility that LCCs may see a downfall in India as the cost structure is so high that it is getting impossible for an airline to survive as a low cost model in this market. “We would like to provide affordable fares to our customers but we are unable to do so due to heavy taxation, cost of infrastructure and infrastructure bottlenecks. When an airline, just to survive, has to apply fares that are 40-60 per cent higher than normal air fares in Europe, we cannot be termed as low cost.” Roni suggested that airlines, along with all the other stakeholders in the industry, should go to the root of this unusual hiccup and create a dialogue that will help come up with a solution at the earliest.
Venggataro Naidu, Head of Network & Fleet Management, Air Asia X, sees a lot of potential in the Indian market. “Air Asia has a huge network in Asia with short haul flights and we see a lot of potential in the LCC market, not just in the domestic market, but also in long haul flights.”
Speaking about the change needed to successfully run a LCC in India, Mills said, “What we first need to change is perception. As soon as aviation in India is not classified as a luxury good and actually be considered as a serious infrastructure, things will change. The Government needs to realise that aviation can be a major GDP growth driver.” He further opined that aviation is not just for the elite minority but for the middle class majority.
Agreeing with Mills, Roni further explained that aviation, if treated properly in this country, can have a major impact on the economy, employment generation and tourist flow into the country. “The number one priority and the biggest challenge LCCs face in India is taxation. Taxation in Indian on ATF is the second highest in the world at 25 per cent. This number, in fact, doesn’t provide a true picture, as on top of the sales tax there is an exercise fee of 8.24 per cent as well as an octroi. At the end of the day the taxation burden of ATF is more than 40 per cent. This is something that needs to be addressed immediately,” he concluded.
