Beyond the horizon

Vijay Mallya is a man in a hurry. Two-and-half years after his fledgling Kingfisher Airlines began operating in the domestic market, the flamboyant liquor baron wants to go international. The problem is India’s civil aviation rules prohibit commercial airlines that are less than five years old from flying internationally.

Currently, and much to the chagrin of Mallya and other airline bosses, only the government-owned airlines, Air India and Indian Airlines (both of which are being merged), and one private airline, Jet Airways, are allowed to operate international flights. And by all reckoning those are not enough. In 2006-07, nearly 26 million international passengers flew in and out of India’s 24 international airports. Though this was 15 per cent more than the previous year, nearly 80 per cent of them flew foreign airlines.

Clearly, there is a vast market opportunity for more Indian airlines to fly international. And that is why Mallya can’t wait to begin. The flamboyant Bangalorean is all set to start non-stop India-US services next April when he gets Airbus A340-500 aircraft capable of flying such distances. The problem for Mallya still is that until the government opens up international flying for younger carriers he cannot start. “When players like Jazeera, Air Arabia, Nok Air, Tiger Airways, some of whom have been around for less than a year, can fly to India, why can’t we?” asks Mallya.

As well as a growing opportunity, international services are also lucrative. Although the establishment costs for international operations are far higher, the flights are more profitable for everyone. Because international airlines are able to uplift fuel at slightly reduced prices, and because bigger planes are more economical to operate than smaller ones as well as the added bonus of long-haul freight, the flights make more money per available seat kilometre (ASK), than domestic flights.

Unsurprisingly, Air India, which was once sluggish, has also become more aggressive of late—it is acquiring a new fleet of Boeing 777s and 787s. Jet Airways, too, is adding 777s and long-haul Airbus A330 aircraft to its fleet. Clearly, both players want a piece of the action that is being hogged by foreign airlines. And, of course, there is Mallya, who has been lobbying hard to be allowed to get going.

Lucrative they may be but international services are not expected to grow as fast as domestic services. According to Dinesh Keskar, Vice President (Sales), Boeing, while domestic air travel is expected to grow at twice GDP growth, international air travel will, by and large, grow in line with GDP growth. “There is a bit of latent demand in the industry, which will be addressed by a lot of the capacity addition in the next few years,” says Saroj K. Datta, Executive Director, Jet Airways. “The international traffic into and out of India is expected to grow at around 15-20 per cent per annum in the near term,” he adds. That growth rate will likely taper off once the latent demand is taken care of by the additional capacities.

Mallya, however, is not going to let Air India and Jet Airways have their own way with the market. He has ordered five 550-plus seat Airbus A380s, which are expected to enter his fleet by 2010, and he recently admitted that he was trying to speed up delivery of the aircraft. “We will fly with Deccan licences,” he told Business Today. Air Deccan, in which Mallya acquired 26 per cent stake, turns five next August and, therefore, will be eligible for government permission to fly internationally.

Some in the industry, notably the foreign players, believe that Indian carriers may not be a match for the well-entrenched global players. “I do not want to belittle what Indian carriers are doing, but even with all the aircraft that are being ordered by Indian carriers, their long-haul fleet will be much smaller than that of a large network carrier such as ours,” says Lufthansa’s Vice-President, marketing, Andreas Bierwith. Lufthansa offers services from the six Indian metros and is looking forward to expanding its services.

In fact, Lufthansa’s service from San Francisco to Bangalore via Frankfurt is so popular, thanks to its quick connection time, the San Jose Mercury News dubbed it the ‘Bangalore Express’. Datta is pragmatic. “Yes, I believe foreign carriers will continue to do well in India, but by offering an excellent product and, eventually, connectivity, we’ll gain a market that is ours,” he says. With the government planning to open up West Asia to Indian carriers, the carriers should get at least 50 per cent of the market, “I don’t think Emirates or anyone will begrudge us that,” adds Datta.

“There is tremendous demand for air travel service between India and the Gulf sector, and the opening up of the Gulf routes will ultimately benefit the customer. Emirates believes that free competition is the greatest catalyst for better customer service and it keeps everybody on their toes”, says Emirates Vice President, India and Nepal, Orhan Abbas.

Other low-cost airlines are more than willing to enter the low-cost international area. “Why not?” asks Siddhanta Sharma, Chairman, SpiceJet, “If we are allocated routes to the Gulf and South-East Asia we will definitely fly them, there is demand for cheap flights on these sectors from both the labour market and value-conscious travellers.” Even Air Deccan is expected to start its own low-cost services to these regions when permissions come through.

“I believe the domestic focus will continue for most carriers, but international flights will allow us to increase aircraft utilisation and make some money, and that is the case for all value-based or low-cost carriers,” says CEO of JetLite, Gary Kingshott.