India's huge population does not fly very much – but the country's ambitious airlines believe that there is a huge untapped market set to explode
Commercial aircraft manufacturers are salivating over the explosive growth in the Indian market, stimulated by the birth of several new domestic carriers and the fast international expansion of existing airlines following several years of stagnation.
India's airlines expect to take delivery of at least 37 and as many as 74 additional passenger aircraft in 2005 (see chart), representing a 22-43% expansion. Several of the airlines say they would add even more aircraft this year, but the manufacturers are unable to deliver fast enough.
Air India, for example, has had to delay for at least a year its plans to lease up to 16 additional widebodies. Managing director V Thulasidas complains that lessors do not have any Airbus A330s or Boeing 777s available until 2006.
Jet Airways, which launched a rushed search for widebodies in January after securing rights to serve the UK, has had to settle for three A340-300s subleased from South African Airways.
Bad fit
Chief operating officer Peter Luethi says A330s and 777s were not available to meet Jet's ambitious schedule for an April launch of long-haul services, and 767s were a bad fit for the markets the carrier plans to serve.
The race to acquire aircraft is being spurred on by the sudden opening of new international routes to established private carriers such as Jet, and the proliferation of low-cost carriers (LCC). Two new LCCs, Kingfisher Airlines and SpiceJet, have placed large narrowbody orders before their launch. Kingfisher and SpiceJet, as well as Go Air, have all set launch dates for this year and there are several other proposed start-ups, including Delhi-based airline information technology provider InterGlobe, that are considering joining the fray. Meanwhile, the realisation that it will not be India's only LCC for much longer has prompted Air Deccan to order 60 additional aircraft.
All the LCCs are in a frantic rush to tap a domestic market they claim is so under-served that there is more than enough room for all of them. They all point to the same statistics – India's population of 1 billion, with a fast-growing middle class approaching 300 million – but in the last fiscal year there were only 16 million domestic passengers. Every day in India, roughly the same number of people board interstate trains.
India's population is fast approaching that of China, but Chinese domestic passenger traffic is over 100 million. Even much smaller Malaysia – the home of Asia's largest LCC, AirAsia – has a domestic market of about 13 million.
Europe's EasyJet and Ryanair together now operate about the same number of aircraft as all the Indian carriers put together, a statistic the LCCs say must change if India's booming economy is to realise its full potential. The LCCs believe the market can easily support 1 billion passengers a year, which if true would leave a large enough pie to ensure all of them get a decent-sized slice. Even Singapore now has three LCCs for a population of less than 4 million, Go Air project manager Jeh Wadia points out.
"There is no market this under-served in the world," echoes SpiceJet chief operating officer Jason Bitter. "It's obscene."
Service counts
Deccan managing director Capt G R Gopinath adds: "We started with this mission to sell 1 billion seats. It's not a crazy number. All we have to do is make our middle class of 200-300 million fly three to four times a year."
The new LCCs say they are focused on preparing their own launches rather than worrying about the competition, but they have managed to differentiate themselves by targeting different sectors of the market.
Kingfisher, believing Indians expect service when they fly, will offer frills on board including complimentary hot meals and drinks. Each seat will offer 30in (11.8cm) pitch, headrest and a Thales i3000 in-flight entertainment system.
Not surprisingly, the company is being led by two former JetBlue executives – chief executive Alex Wilcox and vice-president of maintenance engineering Hitesh Patel. Kingfisher has also hired two Indian nationals who had stints with JetBlue to manage its line maintenance and technical service operations.
Deccan, SpiceJet and Go Air are pursuing a purer no-frills model. SpiceJet will sell food and not offer any in-flight entertainment, but will pre-assign seats to avoid chaotic queues at the gate. "We're looking for the low end of the middle class," explains Bitter. "We're going for the masses."
SpiceJet already has six expatriates on the payroll, including Bitter from Belgium's VBird, chief executive Mark Winders from CanJet and executive vice-president of engineering Roger Page – who was on the start-up teams of Air Sahara, Jet and several other carriers outside India.
Low-cost ambitions
Wadia, who plans to hire an expatriate chief executive this month, says Go Air will offer the simplest of services and will "not go beyond putting wings on buses". To keep costs down, Go Air has decided not to follow Kingfisher and SpiceJet in committing to new aircraft and will instead operate secondhand Airbus A320s or Boeing 737s.
"For the first two years we're looking at leased aircraft. Towards the third year, we'll consider the delivery of new purchased aircraft," Wadia says. "At the moment I don't see the justification of a higher capital cost."
Patel says Kingfisher will be the first airline in India to launch with new aircraft; this is one of many "firsts" Kingfisher is claiming for the Indian airline industry as part of its quest to become the lowest-cost operator. Kingfisher will take delivery of its first 174-seat A320s in April and start services from its base in Mumbai in early May.
Another three A320s leased from Debis Airfinance, three purchased A320s and two purchased A319s are scheduled for delivery by the end of 2005. Kingfisher holds options for 20 more A320s that, if exercised at the end of this year, will give the carrier 28 A320 deliveries for the period 2006-8.
SpiceJet also has ordered new aircraft, last month signing a contract for 10 189-seat 737-800s, plus 10 options. But the carrier will launch in May with two used 737-800s leased from GATX. A third used aircraft will be delivered in May from Babcock & Brown, and Bitter says he is looking for at least two additional secondhand aircraft to be delivered before the first new aircraft arrives in January.
Growing fleets
Bitter believes that Delhi-based SpiceJet can be the lowest-cost operator in India by focusing on more efficient use of manpower. It plans to turn around its 737s with six people, compared with as many as 20 at existing Indian carriers. To maximise aircraft utilisation, SpiceJet will operate many of its aircraft overnight. Kingfisher is also looking at this option, even though the longest domestic flight in India is less than 3h and the entire country is in a single time zone.
Mumbai-based Go Air plans to select an aircraft type by the end of this month and launch in September. Wadia, who also claims Go will be India's lowest-cost operator, says the carrier aims to launch with three aircraft, add another three in December and have 20 by the end of its second year in operation.
Air Deccan launched in August 2003 with four used ATR 42-320s and introduced its first A320 in August 2004. The carrier now operates seven ATR 42-320s, two ATR 42-500s and three A320s. Two additional A320s and three additional ATR 42-500s are to be placed into service over the next few weeks, giving Air Deccan a big capacity boost ahead of the launch of Kingfisher and SpiceJet.
The Bangalore-based carrier is already committed to adding 32 more A320s and 33 ATR 72-500s over the next five years, an ambitious acquisition designed to ensure Air Deccan remains the market leader in India's fast expanding LCC playing field. Gopinath believes that next year Deccan can capture 10% of the domestic market – which is currently controlled by Air Sahara, Indian Airlines and Jet Airways – and also become India's largest carrier by 2011.
Air Deccan pursues a strict no-frills approach, selling food on board and refusing to pre-assign seats. But the carrier is not a typical LCC in that it is using unusually small aircraft to serve rural routes that have little or no air service from other carriers. Air Deccan already serves 30 cities in India, almost as many as Indian and Jet and several more than Sahara, and aims to eventually operate into all 150 Indian airports with large enough runways for ATRs or A320s.
"Obviously we've changed the low-cost model to suit the Indian context," says Gopinath. "The Indian market is different."
Many of the routes Deccan is now serving with ATR 42s will be able to graduate to ATR 72s and, in some cases, A320s. Bitter says SpiceJet also plans to connect to many secondary cities, pointing out that even small cities in India have populations in the millions.But Gopinath believes short runways at many of India's rural city airports means turboprops will always have a role.
ATR, as result, considers India its biggest growth market. To further cement its dominance of India's turboprop market over rival Bombardier, ATR has committed to opening a training centre in Bangalore with Deccan. It is also seeking a partner to establish a local maintenance facility, and is considering outsourcing production of some components to Hindustan Aeronautics.
Business boom
"The market is really exploding and we're fortunate the ATR has become the turboprop of preference in India," says ATR senior vice-president commercial John Moore. "There are a lot of low-cost carriers going in and some are looking for regional aircraft." He adds that Indian Airlines' subsidiary Alliance Air is also looking to lease six more ATR 42-320s on top of the four it currently operates.
Embraer is also hopeful that its new 170 family of aircraft will find a home in India's fast expanding LCC market. Proposed start-up Indus Airways says it aims to launch as early as June with an initial fleet of three 170/175s, and expand to a fleet of 20 aircraft within three years. Chief executive-designate Capt Deep Berri says Delhi-based Indus will not be an LCC carrier, but will offer "a reasonable cost" product with 31in pitch catering to business travellers in smaller markets. "On these routes, there will be less competition," says Berri.
Bangalore-based Air One and Mumbai-based Visa Airways are other potential regional start-ups. But clearly the main beneficiaries of the rapid airline growth in India will be Airbus and Boeing; both manufacturers say they are now in the process of significantly boosting their 20-year forecasts for India.
"India will absolutely boom," says Boeing senior vice-president of sales Dinesh Keskar, adding that the LCC growth domestically and "liberalisation of the open skies policy" on international routes "will result in more aircraft".
While almost all the deliveries to India this year will be narrowbodies, driven by the growth in the low-fare sector, international growth has led to widebody competitions at Air India, Indian Airlines, Jet and Sahara.
Thulasidas says Air India aims to place orders around mid-year for 50 new widebodies. Air India is evaluating the Airbus A340-500 and Boeing 777-200LR for its ultra-long-haul requirement, the A340-600 and 777-300ER for its 350-seat requirement, and the Airbus A330-200 and Boeing 787-3 for its 250-seat requirement.
Because lead times for the new widebodies are at least 18 months, Air India is seeking to lease up to 16 widebodies in the interim in addition to the three 777s it signed lease deals on last year. Air India wanted to add as many of these aircraft as possible in 2005, but Thulasidas says Air India has no choice but to wait until 2006 because there are no A330s or 777s available until then. It has also had to defer until 2006 plans to add three A310Fs and one 747-400F freighter because of lack of availability.
"We do want more 777s, but in 2005 we won't get any," Thulasidas says. "For 2006, I don't see a problem with leasing aircraft; it's 2005 that's difficult."
Thulasidas says the rapid fleet expansion is not driven by increased competition, but by the need to catch up on several years of lost growth. The government has not allowed Air India to order aircraft in over a decade. As a result, many international markets are suffering from undercapacity, and Air India has lost market share to overseas carriers that it now hopes to recover with service and fleet upgrades.
Focused expansion
Air India is also launching its own LCC next month to improve its market share in the Middle East and South-East Asia. Air India Express has already leased three 737-800s, the first of which has been delivered; Thulasidas hopes to order 18 additional 737-800s next month and lease five more.
Thulasidas insists Air India Express is not a reaction to the growth of LCCs in the region, but is "a response to demand that's been in the market a long time". He says the subsidiary may also be used in the future to operate domestically, a market Air India has traditionally left to Indian Airlines.
"We have a need to feed our flights. Indian Airlines now does it. Whether Air India Express does it in future, we'll have to see," he says.
Indian Airlines, which is reportedly looking at turning its Alliance subsidiary into a LCC, declined to be interviewed. But Airbus is expecting Indian will this year sign a long-delayed order for 43 A320 family aircraft, which will be used to replace Alliance's 737-200s as well as A300s and older-model A320s at the Indian mainline. Indian also has put out tenders to lease 12 widebodies for delivery late this year or next year.
Air Sahara and Jet are now focused on expanding into widebodies rather than adding to their Bombardier CRJ200 and ATR 72 regional fleets because, for the first time, they have been given the opportunity to operate outside the Indian subcontinent. Jet is negotiating to lease three A340-300s as an interim solution for its new London service and Luethi says Jet will re-evaluate its long-term widebody fleet plan over the coming months as it ponders other potential routes to continental Europe, North America and eastern Asia.
Jet will also take delivery in the coming weeks of two 737-800s in a special configuration, with 16 international business class and 124 economy seats. These are two of the seven leased 737-800s that Jet will add this year, and will be used for new services to Kuala Lumpur and Singapore. The other five aircraft – and a further 10 that Jet plans to order around mid-year for delivery in 2006 and 2007 – will be used mainly for domestic expansion. Luethi is confident Jet can keep its industry-leading domestic market share despite the new LCC competition because it focuses on another sector of the market.
Long-term plans
Air Sahara says it looking to lease five widebodies by September for new international services, while for domestic expansion it has recently taken delivery of one additional 737-400 and seeks to lease four more 737s by year-end. Domestically Air Sahara has differentiated itself by last month establishing a hub and spoke network using Hyderabad as its hub, compared with the point-to-point services generally offered by other Indian carriers.
While all the carriers insist the market is ready to support all the expansion, inadequate infrastructure and a looming shortage of pilots and mechanics threaten to impede the expected growth.
Air Deccan, for example, says pilot recruitment and training problems over the last month have forced it to delay placing two additional A320s into service. The new LCCs say they have been able to hire an adequate number of crews to man their initial fleets, but acknowledge that, as the pace of deliveries accelerates, this task may become increasingly difficult.
The new airlines are bringing in pilots and mechanics from abroad until they can train enough locals to man the operations. Several of the new airlines complain that government regulations are restricting their ability to hire expatriate pilots, who can only be contracted for captain positions for a maximum period of one year and must have at least 500h of in-type experience.
Thulasidas says Air India can hire enough pilots and mechanics to keep up with its fleet expansion plans because it has in-house training facilities. Jet is also planning to build its own pilot training centre in 2006, and Air Deccan will open a simulator centre later this year. Other LCCs say they will open their own schools or partner local institutions if necessary. They believe India will also relax its rules on foreign recruitment if the pilot shortage starts to become a real impediment.
India's major airports, meanwhile, are bursting at the seams and lack the parking facilities and terminal space to support all the LCCs. Air traffic control also has its own capacity constraints, and the number of movements it can handle are well below Western standards.
But the carriers say India's transport minister is supportive of their expansion plans and has pledged to make the necessary improvements. Upgrades of the Delhi and Mumbai airports are about to start and longer-term solutions are to be unveiled by the end of this month as part of a new civil aviation policy.
"Infrastructure is our main impediment here," says Bitter. "But the minister recognises this and that's why he has this massive programme for airport improvement."
Burdensome government regulations that require airlines to do their own ground handling and most security functions also add cost. For example, the LCCs have to buy or rent their own X-ray machines, and aircraft handling at even the smaller outstations cannot be outsourced because third-party companies are not permitted in India.
Culture change
The government also has a route dispersal programme which requires all carriers to operate on unprofitable rural sectors. Observers say the general working culture can also make running an LCC in India difficult: for example, employees are not accustomed to doing tasks outside their class ranking. But for LCCs to succeed, flight attendants will need to clean aircraft and collect tickets, pilots will need to carry their own baggage rather than relying on special porters, and crews will have to find their own way home at night rather than being chauffeured.
"We need to revamp the culture here in India," says an executive of one LCC. "The number of bodies they throw at everything is insane." -
Manufacturers say the corporate market in India is also on the rebound after several years of stagnant growth. Cessna in 2004 delivered new Citations to two Indian corporations, Jindal Iron & Steel and the Poonawala Group, the first such placements in several years.
BRENDAN SOBIE/BANGALORE, MUMBAI & NEW DELHI
Source: Flight International
