Friday, October 19, 2012

INDIAN AVIATION: BOOM TO DOOM

Aviators in India, in their race to get ahead, fell way behind

Common sense tells us that an annual traffic base of 7.7 million is never enough for launching LCCs, whether it’s Europe, US, India or the Cook Islands! But Gopinath expanded his fleet and offered cheap tickets (even for Rs.3, Rs.2, Re.1 – indeed, ‘cheap’!). Never did it make money (in fact, experts estimate that on an average, it lost Rs.50 crore everyday), and is today extinct! He wanted to capture market share and play the long-term game, but he forgot the science behind ‘breaking-even.’ Binit Somaia, Regional Director, CAPA comments, “Firstly, it was tough for management to keep control of operations given the pace of expansion, this resulted in service deterioration and poor punctuality with a negative impact on the brand. And secondly, capacity grew so far ahead of demand that the options were to either fly with half empty planes or to discount heavily, both are commercially unsustainable.”

In fact, a host of other names spent a mammoth Rs.1 trillion in buying aircrafts during 2006 alone, out of which, Rs.408 billion was accounted for by the LCCs! The count of domestic passengers travelling by air increased to 37.4 million by 2008-end, but the sector ended up making a terrible Rs.700 million in losses for the year! Many names committed many such blunders – Jet bought the zero-asset Air Sahara for about Rs.1600 crore and Kingfisher acquired Deccan (we call it Kingfisher Red today). CAPA experts opine, “Jet’s defensive strategy to prevent Sahara being acquired by another competitor has not paid off. The integration has proven to be extremely expensive.” The sector had suddenly become a hunting ground for prodigal acts of entrepreneurships, acts that make the case for our list quite easily!


Source : IIPM Editorial, 2012.

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