Saturday, February 28, 2009

Future of Low Cost Airlines

This article will give you deeper insight into the future of low cost airlines and why Low cost airlines business is a profitable venture.
First of all what is Airlines business, to put it in simple terms Airlines business is just a glorified version of bus operation for transporting peoples from point A to point B. And advantage of airlines over any other mode of transportation is that it saves the most precious thing i.e. time and this time can be used in any other productive work.

The objective of the low cost carrier is to provide safe, reliable and short duration air travel at the lowest possible fares. And as said by C K Pharlad, the management guru, the cheaper you can make something, the more people can afford it. Air Deccan started its operations in 2003 and in just 4 years of its operations it garnered around 22% of domestic passenger market share which I think is quite commendable performance and it clearly shows that future of low cost airlines is very bright.

For better understanding I will divide my article in 4 parts
1. How low cost airlines manage to offer cheap tickets
2. Potential of low cost airlines
3. Problems faced by Low cost airlines
4. Future of Low cost airlines considering Indian scenario

Coming to first point i.e. how low cost airlines manage to offer cheap tickets
1. Low cost airlines have less turnaround time. Turnaround time is the time taken to get the plane ready for next flight.
2. Higher load factor i.e. more passengers fly per flight as compared to full fledged carriers.
3. No food or drink is served inside the plane free of cost.
4. It uses the secondary airports for its operations.
5. It encourages the travelers to book the tickets online.
6. Almost every space is available for advertisement so as to earn revenue.

Now the Potential of low cost airlines
Well as you know the population of India is 1.1 billion but only 12 million i.e. only 1% travel by air every year whereas in the US which has a population of one fourth of that of India more then 3 million people travel by air everyday. Remember its every day, whereas in Indian context it was every year. On an average the daily flights in India is only 400 whereas in the US it is 40,000. Mind blowing…… So in short huge potential.

Now the problems faced by Low cost airlines
1. The biggest problem at the moment is poor airport infrastructure.
2. Price of air turbine fuel is one of the highest in the world. And fuel constitutes 40% of operating cost of LCC.
3. Out of 450 airstrips only 61 are fully functional. Because of this LCC has to compete with the full fledged carriers for using these airports.
4. Almost all the parking bays are with the full fledged carriers

Now the Future of Low cost airlines considering Indian scenario
1. All the Macro Economical Factors Political, Economical, Socio-cultural and Technological are in favor of the growth of low cost airlines.
2. India has a huge middle class population of 300 million and even if 10% of that can afford to travel by low cost airlines then it’s a huge number.
3. With the booming Indian economy more and more companies are establishing their centers in smaller cities like Agra but these are poorly connected and low cost carriers provide better connectivity between smaller cities and major metros at affordable rates.
4. Tourism industry is growing at 8.8% and with rising disposable income more and more people are traveling by aero planes.
5. Government is undertaking Modernization and Privatization of airports.

I believe for the growth of India good air connectivity at affordable rates is must. LCC saves time by reducing travel time and it saves the money by giving cheap tickets.
Just like cheap mobile has brought revolution in communication industry, low cost airlines will bring revolution in the way common man travel in India.

Amit Goel

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