What does DGCA report reveal about state of India based airlines?

India based airlines can rarely be classified as truly low-cost carriers (LCC) and this is due to a mixture of the following facts:

  1. Government policy which does not allow spilt up pricing of each part such as baggage and other add-ons similar to what the Ryanair’s and Air Asia’s of the world do.
  2. Lack of availability or permission to use secondary airports where airport charges are a fraction of the big airports. It is due to continued policy paralysis that hasn’t allowed development of new airports in decades and has disallowed any up-gradation of other airfields that could be used by such carriers. Instead the government has always played catch up by using airstrips meant for defence use which results in further congestion and lack of flying quality experience for the customer.
  3. The 5/20 rule basically cripples airlines to make money on lucrative routes (typically close by international tourist destinations) and instead just be bound to the local market thereby impacting their financial health severely. These limits though doesn’t apply to International airlines that have consistently had the cake and eaten it very well too. Consider the case of Air Arabia and Flydubai who never had to meet the 5/20 criteria to start flying on lucrative Gulf routes to and from India.

Further to this the aviation ministry is proposing a pricing mechanism to control airfares which may not be justified in first go itself. You may ask why? Given that airlines may use the lack of pricing mechanism to quote astronomical process. Well a recent DGCA report on the fare analysis for the year 2014 has thrown up some interesting findings:

  1. Almost airlines are priced close by so the Low Cost v/s Full service fight in the India skies seems to be an absolute myth given that fare difference on the 18 sectors it compared doesn’t seem to vary much. For e.g. the fare difference between various airlines on the Delhi-Mumbai sector, which is one of the most prized sector averaged around Rs. 1000/-(approx. USD $16) mark. That’s chump change compared to service differentiation a full service carrier provides.
  2. Most of the carriers are in fact selling the tickets primarily in the lower priced fare bucket whereby they aren’t exactly fleecing anyone but are bound by the competition to not raise prices and thereby impacting their bottom-line.

This seems to be a very unsustainable way of allowing airlines to run. Except for one airline no other airline has been able to run profitably in the Indian aviation space. This is also leading to carrier bleeding heavily and some of them ending belly up (remember Kingfisher etc.) If the sector isn’t fixed soon we may see more of them going out of business. There is a clear need for the government to take cognizance of the fact that air travel is now no more a privilege but an important means of connecting people around the world and if it wants one of the biggest aviation markets in the world to flourish it really needs to get cracking on the sweeping changes that need to be made to bring this industry back in shape. What are your thoughts on this? What should the Indian government do?

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