AI's low-cost service to expand in phases

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National Aviation Company of India (Nacil), which runs flag carrier Air India (AI), has gone back to the drawing board to study new domestic routes to introduce low cost arm Air India Express in phases, say Air India officials.

The first phase of low cost expansion is estimated to be completed within six months to cash in on the boom of low cost travel in India and the airline might deploy more capacity in the north region, the AI officials said.

Air India CMD Arvind Jadhav had in late 2009 said the carrier will deploy nearly 27% of its domestic capacity on its low cost subsidiary. However, analysts say that the carrier will not have the first mover advantage as arch rival Jet Airways had when it introduced JetKonnect in 2009 with fares lower by 15% than its full-service carrier. However, the Indian aviation market is growing exponentially and each operator can grab a decent pie from it.

Air India COO Gustav Baldauf recently said, "Low cost carriers play an important role. We will tackle the market in different levels. LCC as a business model is a part of the total restructuring concept."

Meanwhile, Air India Express' website also emphasises that Air-India Express, based on market-trends, will be introducing many new destinations, international as well as domestic. Initially, it would cover over 20 cities with over 150 flights a week, and later pan-India services will be rolled out. However, it is not yet clear whether the airline will convert aircraft to an all-economy aircraft or lease aircraft for the purpose.

Private carriers Jet Airways and Kingfisher Airlines already have low cost service, thereby propelling existing competition among discount airlines like Delhi-based low fare carriers Spice Jet and Indigo.

For instance, Jet had introduced low cost service JetKonnect in 2009. With load factors of over 85% JetKonnect links five major metros- Mumbai, Delhi, Chennai, Bengaluru and Kolkata with several destinations across India, operating over 195 flights daily. The airline was launched with an intention to boost nearly 15% of Jet's revenues. The airline has reported Rs 2,965 crore revenues for the first quarter of FY2010-11. The carrier commands 44% revenues from domestic operations.

Statistics provided by the Directorate General of Civil Aviation (DGCA) suggests low cost carriers collectively command 43% of the market share. Given the fact that they have a smaller fleet compared to full service carriers, these numbers signify growth in the low cost space.

Also, carriers like Indigo have registered load factors of 90% followed by 88% loads recorded by SpiceJet in June. Their seat factors declined in July marginally due to a lean season.