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Fares to fly low as new airlines take off; flyers to benefit from higher supply of seat inventory

Expanding market and low jet fuel prices could also see airlines in the black

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Now that budget carrier SpiceJet is on its way to recovery, and Tata-Singapore Airlines (SIA) is ready for a take-off in the first week of January, 2015 could start with fierce competition kicking in into the sector with every carrier trying to woo flyers in the expanding market.

And with many more airlines waiting in the wings to launch their services in the current year, the expansion in the sector will only benefit flyers as it will drive down fares with higher supply of seat inventory. As seen in the past, will this splash red on the books of the airline operators?

Captain G R Gopinathan, pioneer of low fare aviation in India, does not think so. Citing examples, he said UK's Ryan Air, which entered a mature market more than a decade back, has been profitable ever since it was launched.
"It (profitability of Ryan) is not a flash in a pan. If you look closely, most airlines with lowest fare generally have a higher profit while those with highest fare have a hard time keeping the red off their balance sheet," he said.

According to him, today, Ryan flies 80 million passengers, out of which 20 million passengers pay a fare of just euro 1 plus taxes. Its revenue per passenger at euro 39 is among the lowest but it has one of the highest profits among the airlines in the world. In contrast, British Airways's revenue per passenger is Euro 250 but it has to struggles to remain in profit.

Capt Gopinath says the sector could be at an inflexion point, from where it will expand a furious pace with more players entering the market.
His argument: there remains a huge potential in the Indian market with currently just 2% of the population taking to air. "We still have 98% of the flyers to tap. If we ask the right question, we will be able to get the right answers. We need to ask; how do you make this current number of 2% of the population to 25% of the population in the Modi era?"

Capt Gopinath says if Malaysia, with a population of 30 million can fly 18 million and US with a population 250 million can fly 750 million, India can also fly more than the current 59-60 million passengers with a population of over one billion.

In this context, he said Indian needs to have more and more low cost airlines "to have an inexhaustible inventory for consumers (air passengers)".

According to him, entry of more airlines is good for the sector but it was important that they are efficient, inclusive and innovative and the government should create an ecosystem for all of them to survive rather than promote a single carrier.

"Each time there is crisis in the sector, the government is reacting to an individual airline. Initially, it was Air India; then it was Jet Airways and Kingfisher Airlines and now it is SpiceJet. The government has to take steps to improve the sector on the whole," said Capt Gopinath.

India's airlines operate in a non-conducive environment with very high taxes – between 4% and 28% - on jet fuel making it among the priciest in the world, airport monopoly, low air airport connectivity and other such constraints.

Till now – from January to October – as per government data, the domestic airline industry has grown at 9.14% to 60.94 million air passengers compared with 55.84 million in the same period last year. On a month-on-month basis, the air traffic passenger grew 14.35% to 5.87 million in November from 5.13 million in October.

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