Fed up with losses

IIPM’s 36th Glorious Year of Academic Excellence

Is low cost model unsustainable in India?
No, LCC model is still the best suited option in India. LCCs still have lower fares but the fares can not be kept at the levels of 2006 or 2007 when ATF was half the cost of what it is today.

Is there an urgent need to change the aviation business model in order to generate more funds so that one would be no more dependent on just ATF prices?
Dependence on Jet fuel will continue to remain high for all airlines. LCCs in general and SpiceJet in particular do get revenues from ancilliary sources such as insurance, hotel bookings, web advertising etc.

Are there chances of cutting down more flights if the oil prices do not come down?
Reduction of fleet/ flights is a universal phenomenon when demand reduces due to high costs. United Airlines has recently ground one fifth of fleet. To recognise slowing of demand and taking measures to counter it is foresightedness which is what Spicejet has done.

Despite problems Airlines like Rynair and many other Low Cost Carriers in the world have managed to survive the competition. Can’t Indian players learn from them?
This clearly shows superiority of LCC model over the others. However, some revenue streams like car rentals, sale of alcohol, sale of lotteries etc. are either negligible or absent in India.

Aviation experts recommend more consolidation in the sector. Your comments?
Rationalisation of capacity commensurate with the demand is need of the day. Whether it will come from consolidation of self discipline is the question.

For more articles, Click on IIPM Article.

Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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