LCCs now account for 55pc of capacity in India

The contrasting fortunes of LCCs and full service carriers, which is playing out around the world amid the current economic downturn, is vindicating the faith investors in Indian LCCs have had for the model.

Overall capacity within India fell 3.6 percent last month, but the LCCs expanded by 4.4 percent, according to Centre for Asia Pacific Aviation (CAPA). 

(Delhi-based SpiceJet, backed by US-based billionaire investor, Wilbur Ross, had a stunning turnaround in profitability in the three months ended 30-Jun-2009, reporting net earnings of USD5.5 million, helped by lower fuel costs. SpiceJet CEO, Sanjay Aggarwal, stated with justification, “in the current environment, it’s an amazing result”).

India’s LCCs control over 55 percent of the domestic market – the highest in the world. The rationalisation of capacity by the full service carriers, led by Jet Airways Group, amid spiralling losses has helped to propel the Indian LCC sector forward.

CAPA highlighted that LCCs also now control 14 percent of capacity to/from India, up from less than 1 percent just four years ago. This figure is expected to rise sharply in coming months as more carriers from Asia and the Middle East target India and domestic carriers such as SpiceJet prepare to expand abroad.

In particular, Jetstar Asia, AirAsia, nasair and flydubai are looking to rapidly expand to India from Singapore, Kuala Lumpur, Riyadh and Dubai, respectively, over the next 12 months.

It is no surprise therefore that Jet Airways, Air India and Kingfisher are expanding their short-haul international operations in an attempt to defend against the coming LCC surge in these markets. 

Outlook

CAPA stated: “Everyone will “be an LCC” by the third quarter – and everyone stands to lose. As we enter the low season, domestic losses in India are expected to rise in the second quarter to 30-Sep-2009 and the earnings outlook beyond that is also questionable for full service and LCC carriers alike. The problem for the incumbents is they are entering the LCC sphere with still-higher cost structures relative to their peers, while their mainline operations remain subject to intense competition. The problem for the LCCs is that everyone is now moving to imitate them.”

“By the third quarter, with all the LCC structures in place, yields can be expected to fall even further. Industry over-capacity remains an issue, despite some recent positive steps. Add in rising oil prices, and the Indian airline earnings outlook looks increasingly challenged. The cost reduction battle must intensify.”

Travel Distribution Summit India 2009

Centre for Asia Pacific Aviation’s CEO South Asia, Kapil Kaul, is scheduled to speak at EyeforTravel’s Travel Distribution Summit India 2009 to be held in Mumbai (October 6 -7) this year. 

For more information, click here:
http://events.eyefortravel.com/tdindia/agenda.asp

or contact:

Reece Gladstone
Regional Director, Asia-Pacific & Middle East
Email: reece@eyefortravel.com
Telephone: +61 (0)3 9938 1201