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BW Businessworld

Unfair Disadvantage

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Last week, AirAsia — one of asia's most successful low-cost carriers (LCCs) — announced its intentions of starting flights from Kolkata, Thiruvananthapuram and Kochi to Kuala Lumpur (KL) for fares as low as Rs 1,500 (all inclusive). Though the fares are available for a promotional period and are on limited seats, there is no denying that at such rates the launch will be attention-grabbing and the initial flights would be quite full.

The airline launched services to India in 2008 with a flight from Trichy to KL (its Malaysian hub). In fact, it was the first airline in Southeast Asia to fly directly to Trichy. From KL, AirAsia offers flights to about 130 destinations — some  by itself and others through its network of alliances. AirAsia's experience in India has shown that only 20 per cent of its Trichy-KL flight passengers stay in KL, while the rest fly on to other AirAsia destinations.

So good was the response of passengers  —the load factor touched 100 per cent within the first few weeks — that the airline quickly launched a second frequency to Trichy this September (who would have thought Trichy-KL would be such a hit!). In keeping with the now legendary CEO of the airline Tony Fernandes' style of functioning, the airline has managed to achieve all this even without any representative or set up in India — truly low cost!

Sharjah-based LCC Air Arabia, which launched much earlier in 2005 with its inaugural flight to Nagpur, now flies to 13 destinations in India. It gives stiff competition to Air India Express — India's only LCC that services routes outside India. This year Air Arabia launched flights to Goa and last October to Hyderabad. The airline's other destinations in India are Ahemdabad, Bangalore, Chennai, Coimbatore, Delhi, Jaipur, Kochi, Kozhikode, Mumbai, Nagpur and Thiruvananthapuram. From Sharjah, the airline offers another 46 onward destinations — through its network or through alliances. Not only has the airline been introducing new destinations, it is also offering ridiculously attractive rates and promotional fares. For instance, if you wanted to fly to Sharjah or some destination in the region for Diwali or for the New Year this year, you can fly for as little as Rs 3,037, on all services from the 13 Indian destinations. Almost free, it would appear.

Even at a time when carriers globally are looking at cutting routes and capacity, foreign LCCs have been expanding services in India. While the two mentioned above have set an aggressive pace of expansion, there are many which are apparently waiting in the wings. These include Tiger Airways (a joint venture between Temasek Holdings and Singapore Airlines), Thailand-based private carrier Nok Air, Indonesia's Lion Air, United Arab Emirates's Ras Al Khaima Airlines and Saudi Arabia's Sama Airways.

Thanks to stupid Indian policy stipulations, no Indian LCC barring Air India Express is flying overseas as yet. While IndiGo and SpiceJet would be eligible to do so soon, the rule which stops Indian carriers from flying overseas till it completes five years domestically has ensured that no one is doing so now. In other words, the field is totally open for the foreign LCCs to come in and capture as much of the market as possible and get a dramatic headstart before competition comes in.

It is amazing that despite witnessing first hand the way Indian legacy carriers lost out to the likes of Emirates and Singapore Airlines — which fly to god knows how many destinations with a far greater frequency than Air India or Jet Airways — Indian policymakers fail to learn any lessons. They are allowing foreign LCCs to fly to several Indian destinations while preventing their own airlines from flying out. The Indian carriers will, in any case, be at a disadvantage as and when they do get permission since they do not have a ready hub overseas — they would have to create hubs for themselves like Jet has in Brussels.

Second, allowing the Indian carriers to fly overseas and refuel would also help them reduce their costs and be competitive since it is well known that with all the taxes heaped on, aviation turbine fuel is more expensive in India than in most other countries.

I for one am quite unable to understand what will be gained if the airlines first complete five years within India and then fly overseas. And why five? Why not three or seven? Doesn't it make more sense to be more careful while granting licences of any sort to permit airlines to take to the skies and then trusting them to choose and grab the best routes rather than handing out licences to all and sundry, and then waiting for them to prove themselves before entrusting them to represent the country overseas?

anjulibhargava at gmail dot com (This story was published in Businessworld Issue Dated 16-11-2009)