UDAN : Concerns Raised by the Indian Aviation Industry

The final guidelines under the Regional Connectivity Scheme (RCS) as envisaged in the NCAP, which have been named as UDAN (Udey Desh ka Aam Nagrik) are set to be announced today by the Civil Aviation Minister Ashok Gajapathi Raju. The government believes that its ambitious UDAN will jump-start regional aviation in the country. This seems to be in sync with the IATA’s recent forecast: “In 10 years, the Indian aviation market will be the third largest in the world, overtaking the UK.”

“We are very hopeful of a positive response from the industry but our thinking is that with the scheme, we will in fact be jump-starting regional aviation,” Minister of State for Civil Aviation Jayant Sinha has said. 

He expressed his hope that the scheme would be “quite attractive” for consumers, carriers, small and regional airlines, lessors and other players in the ecosystem.

He said that the purpose of formulation of such a scheme is that regional carriers get the support they need both in terms of reducing their cost as well as in terms of viability gap funding so that they can serve tier-II and tier III cities.

The government had on July 1, 2016 unveiled the draft scheme which fixed all-inclusive fares at Rs 2,500 for one-hour flights in its attempt to make flying affordable for the common man. The complex scheme seeks to connect currently unlinked towns as well as extending viability gap funding (VGF) through a regional connectivity fund. There are 394 unserved and 16 under-served airports.

On one hand the government exudes optimism, while on the other hand, aviation experts have said they are not sure about how much of this projected growth will materialise considering several constraints currently plaguing the Indian aviation industry. They reckon legislative constraint is one major hurdle as far as Regional Air Connectivity is concerned. The established airlines grouping – the Federation of Indian Airlines (FIA) – who controls over 80% of India’s aviation, has asserted that the government does not have any authority or mandate to impose levy in nature of tax on scheduled flights. It has threatened to initiate legal action against the imposition of levy.

On its part, the government has defended the imposition of levy on scheduled flights from trunk routes to fund the scheme. The Minister of State for Civil Aviation Jayant Sinha has said that the government had a “very extensive” stakeholder’s consultation process prior to the formalisation of the RCS.

“We have already clarified from the ministry. Based on our own discussions with the Law Ministry, we think we can look forward to this kind of arrangement (imposition of levy) within the current legislation,” he said.

Apart from the upcoming legal battle, the country’s aviation industry has aired its various concerns about the regional connectivity scheme. A day ago, the Minister of state for Civil Aviation Jayant Sinha had hosted a round table in Delhi where the chief executives of airline companies, aircraft lessors and executives in the maintenance, repair and overhauling of aircraft businesses had been invited. Therein the executives voiced their fears. One serious concern is infra structure related – the non-availability of slots at major airports such as those at metros.

The majority of flights still operate from Delhi, Mumbai, Chennai, Bengaluru and Kolkata, airports. These metro airports today are running to capacity. Thus, they have very few slots available for each airline. Some of them like Mumbai have stopped allotting fresh slots altogether. The executives stressed that it was important that some slots be made available at the major airports. Slot constraints at the metro airports prevent the linking of smaller airports with the bigger ones. The hub and spoke model, thus, will not work. For effective execution  of the RCS, this is the basic requirement.

The aim of the NCAP has been – “Take flying to the masses.” The scheme entails capping of the fares at an affordable Rs 2,500 for flights of one-hour duration. (Although, one can travel by air for an hour in a scheduled LCC at less than Rs 1800 even today. Search a cheap air fare at this site now !) The government is aware that Rs 2500 does not fully cover the airplane’s operating costs. So, the government has proposed to indemnify the difference through subsidies which will be provided for a period of three years. The scheme is dependent upon VGF. So, the chief objective should be to rationalise the costs of aircraft operation. Unfortunately, that doesn’t seem to be happening because most of the overheads like landing costs, excise on fuel, user development fee, etc. are increasing. The proposed subsidy is very little for a small 10-20 seat air craft. The cost of seat per kilometer, their acquisition cost, is almost twice that of a regular 80-seater plane. Further, a potential investor will not like to run the business on “crutches of subsidies”.

Air India Leads Fare War. Will this be a hit with the fliers ?

August 8, 2016.

Air India has been working hard on ways to revive its fortunes, reduce expenses and expand services. Air India is estimated to have posted an operating profit of Rs 80 million in 2015-16, mainly helped by steep fall in jet fuel price.

Air India chief Ashwani Lohani, who is about to complete one year as CMD Air India, has asked AI employees to stop presenting him with bouquets and do away with “petty courtesies” while ensuring that minimal number of officials are present to see him off at airports.

Air India has already barred its officials from using luxury cabs while travelling within the country.

The Civil Aviation Minister Ashok Gajapathy Raju said during Question Hour in Rajya Sabha, “After many years, this is the first year that Air India has not made an operating loss. It is going in the right direction and I think if this effort continues, it will be an airline we will all be proud of.”

Observing that Air India, despite its massive loans, is trying to stay afloat, he said, “Its financial status is fairly precarious. It has got a lot of loan. Historically it has come to it and they are doing their best to keep it afloat and to see that it performs second to none. We of course would like Air India to survive. So we are trying that on the government side and we are supporting it.”

Against such an optimistic backdrop, National passenger carrier Air India is now in the lead of the ongoing Air-fare war in India. It has announced a populist scheme : “Monsoon Sale”.

Sacrifice luxury, observe austerity, lure customers by offering discounts, & thus fill vacant seats. Air India now seems to have learnt its lessons.

Air India has announced discounts on select sectors in the economy class for travel on both domestic as well as on the international sectors. Air India cited that the offer can be availed on more than 250 domestic sectors for travel between August 22 and September 30, both days inclusive. It said in a statement:

“Under this offer, available from 9th to 15th August 2016, Air India flyers can book tickets at amazingly low fares starting at INR 1,199/- (all-inclusive one-way fare) and INR 15,999/- (all inclusive) on its select domestic and International sector respectively. On the International network, the sale is valid on select return flights (ex India only) for a travel period from September 15th to December 15th 2016 (both days inclusive) for commencement of journey.” “

Other airlines in India are also forced to follow Air India. Various other airlines have also announced discounted fares to attract flyers during the lean travel season. The periods between January-March and July-September are considered to be lean travel seasons. Airlines have to offer these kinds of special fares not just to increase load factors, but also to stimulate demand, during the lean seasons.

Will these promotions be a hit with the fliers ?

Budget passenger carrier SpiceJet too came out with discounted air fares under its “Great Independence Day sale” scheme.

SpiceJet said under this scheme, it will offer one-way fares as low as Rs 399 base fare (surcharge and taxes extra as applicable) for travel to select destinations on its domestic network and the international fares start at Rs 2,999 base fare (surcharge and taxes extra as applicable) for non-stop direct flights.

According to SpiceJet, the three-day sale will be open till midnight August 11 and the travel period covered is from August 18 to September 30. The airline added that it is also offering attractive fares on various direct flights across the network. As a caution, SpiceJet said, “There is limited inventory under the offer, and seats will be available on first-come, first-served basis. Sales fares are not applicable on group bookings and cannot be combined with any other offer. The offer is applicable only on non-stop flights and fares vary from sector to sector depending on the travel distance and flight schedules.”

Another LCC IndiGo announced its discounted air fares offer starting at Rs 806 for travel on its domestic network. It should be noted that IndiGo had earlier said that its average fare costs INR 

The timing of such announcements coincides with a long rakhi weekend coming up. India’s Independence Day is just around the corner. It is a great time for a quick getaway for Indian air travelers. 

Air India Soars on More Promotional Schemes

India’s aviation industry is currently witnessing a big fare war. When it comes to natural air fare war, it seems that the senior most Airline in the country, Air India, often has a leg up on new airlines. Air India does not want to lag behind. It intends to defeat all its rival airlines and attract passengers through lowest fares. The end user, the flier, has no complaints.  The flier does not see anything wrong with AI’s increased publicity campaigns.

So many plane players…. Air India is one of them.

“It’s tough to fight in terms of market share as the private airlines are adding capacity at a frantic pace. As a government airline, we don’t have the luxury to do so,” says a top official of the Air India. Aiming to attract more fliers and achieve higher seat occupancy in its flights on trunk routes, National carrier Air India has decided that it will be providing “unbeatable metros fare” to domestic passengers willing to return the same day from July 25, 2016.

Air India is now realising that it needs to market itself and grab visibility. It is pulling out all the stops in its high-decibel promotional offers and advertising campaigns. As part of the pricing strategy, Air India will drop fares on four key routes, Delhi-Mumbai, Delhi-Chennai, Delhi-Kolkata and Delhi-Bengaluru, for tickets booked four hours before departure. Air India has an average load factor of 74 per cent across its domestic network while the seat occupancy on these routes is around 80 per cent.

Speaking to media, S Venkat, Air India Finance Advisor, said, “We are going to introduce new scheme for our all passengers who want to return same day flights in metro cities. Fares will be minimum Rs 5,000 and maximum Rs 10,000.”

“This is very attractive fare for all passengers. I am sure this scheme will attract the flyers as the fare is affordable. Earlier, we had launched “equal to Rajdhani fare” scheme, which had received good response. Now, we are launching the special fare scheme,” he added.

Last month, Air India had floated a scheme to fly unconfirmed passengers of Rajdhani trains at fares matching with the AC first class ticket prices. A Mumbai-Delhi air ticket is now available upwards of Rs 3,700 for next day travel on all airlines, while a Rajdhani AC first-class ticket costs Rs 4,755.

These have resulted in improved sales and better engagement with the trade. Ticket sales are rising on travel portals. Air India is engaging with agents and is implementing more customer-friendly initiatives. AI has also agreed to agents’ requests for web parity in fares, offering the same levels on its website and other portals. Thus, bookings for AI this year on travel portals like NC Airways, have increased with especially strong growth in long-haul international flights.

In FY16, the airline cut its losses to Rs 2,636 crore from Rs 5,859 crore in 2014-15, mainly due to a Rs 2,754 crore saving in fuel. “Fuel, of course, helped but I believe the turnaround has been due to efficiency in the management. We are now running the house like a proper corporate,” says Ashwani Lohani, Air India’s CMD.” He is of the view : “A professional firm cannot function on crutches. We want to fly, fly and fly more.”

Air India’s decision to reduce fares is likely to leave its rivals uncomfortable as they have been accused of raising the fares by 2-3 times for last-minute bookings.