Exploring the variables for assessing the competition provided by low cost carriers to Indian Civil Aviation industry.

• Author: Vaibhav, S.
• Position: Report

1. INTRODUCTION

   Civil Aviation sector is a key contributor to the nation's economy and provide a platform for India to compete effectively in the global economy depending critically on air transport. During last decade, Aviation sector witnessed unparalleled growth, domestic air traffic has tripled and international traffic doubled. 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 and to introduce low cost arm Air India Express in phases. The first phase of low cost expansion is estimated to cash in on the boom of low cost travel in India and the airline might deploy more capacity in North region.

   The Indian Aviation market is growing exponentially and each operator can grab a decent pie from it. Private carriers such as 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. Statistics provided by DGCA suggests low cost carriers collectively command 43% of the market share. LCC's have a smaller fleet as compared to full service carriers; these numbers signify the growth in the low cost space.

   Air Deccan can claim credit for bringing the budget airline concept to Indian skies. The Bengaluru based company is a subsidiary of Deccan Aviation, which operates charted air services, mainly with helicopters. Air Deccan unleashed cut-throat competition in the aviation scene with fares almost equal to similar train fares on some routes. In response, leading domestic airlines like Indian Airlines and Jet Air slashed rates and unveiled Advance Purchase Schemes to take on the new challenge. Competition, as always, brought the best to the customer.

2. INDIAN LOW COST CARRIERS AND THE STRATEGIES

   In 1993, the Air Corporations Act 1953 was abolished, which put an end to the monopoly of Indian Airlines and Air India in the scheduled air transport services market. After the abolition of the Act, there was a considerable change in the India government's aviation policy. From March 1994, the market was opened to any company that fulfilled the statutory requirements of scheduled airline services. The government approved eight private carriers to start domestic operations. They were Jet Airways (JA), Air Sahara (Sahara), Indian International, Archana Airways, East West Airlines, NEPC Airlines, Modiluft and Damania Airways.

   Air Deccan's business model was inspired by the globally successful low cost model pioneered by the US-based Southwest Airlines in the 1970s. The fares starts declining as Low-cost carriers contribute to lower fares on the routes they operate (Dresner et al. 1996; Morrison 2001; Hofer et al. 2008). Some studies on the entry patterns of the LCC's indicate that they prefer to operate on high density routes, particularly in the first years of operation (Bogulaski et al. 2004; Gil-Molto and Piga, 2005). In response to Air Deccan's plans to offer services on major trunk routes, the FSAs quickly announced a fare reduction on...