Indian LCCs, global narrow-body ambitions: Part 1

For the last two years, there have been constant talks about both IndiGo and Spicejet planning a foray to London. While IndiGo even filed for slots at airports in London Area on the A321, Spicejet filed the slots at airports in UK with the A330 – an aircraft it did not have in fleet or on order! This year both IndiGo and Spicejet had filed slots at London Heathrow for operations in Summer 2020 schedule, but both have had their slots rejected.

While Spicejet took the lead in announcing a hub at Ras-Al-Khaimah (RKT), IndiGo is still scouting for one, though news reports have indicated the airline firming up flights to Tbilisi from 1st January 2020. This three-part series looks at the European ambitions of Indian LCCs (Low Cost Carriers) with narrow-body aircraft. Part I covers the background and need for a hub, including the factors which influence the hub while part II will focus on Spicejet and part III on IndiGo.

Background

Air Deccan launched as the first LCC in India. All the other carriers back then and later did not factor in the low-cost revolution that India was about to witness. As it stands today, 80% of domestic market share is with the low-cost carriers, but then so is the capacity in the favor of LCCs.

Slowly but surely, sector by sector the LCCs started dominating Indian domestic routes. While Air Deccan got acquired by Kingfisher Airlines and Jet Airways snapped Air Sahara to turn it into a low-cost subsidiary; IndiGo, Spicejet and GoAir were quietly going around doing their business. The LCC experiment of Indian FSCs (Full Service Carriers) did not last long. Its only impact was confusion in the market and making people opt for IndiGo – which was competing with three pillars of On-Time, Hassle free and low cost – something which Kingfisher and Jet Airways found difficult to take on. Both the FSCs had debts making it difficult to offer low costs, the network model put challenges on on-time performance and the mixed mode operations were rarely hassle free, especially on routes where one could get a full service outbound and needed to purchase food inbound!

On this backdrop, both the private FSCs decided to ditch the low cost or mixed mode model, especially since that involved lowering the fares and not the costs and also created market confusion.

Are we done with domestic?

The last five years in India have been characterized by 20% growth in the domestic market! The very high level of growth has meant breakneck expansion for airlines, and in most cases doubling of fleet. The era saw IndiGo add new sub-fleet and new-types to its single fleet model. The fast but planned growth got a jolt this April, when Jet Airways suspended operations. The resulting melee led to Spicejet and Vistara adding B737s from erstwhile Jet Airways fleet and both IndiGo and Go Air adding flights from Mumbai and Delhi.

Information shared by the government shows how many slots each of the airlines were allotted at Mumbai and New Delhi.

Jet Airways slots.png

With this expansion, we have reached a point where the capacity by ASK (Available Seat Kilometers) or departures is equal or slightly more than what the market was with Jet Airways in operation. This again is an indicator that the domestic skies have very little capacity left for expansion and the Tier II to Tier II or Tier II to Tier III connectivity is yet to mature to attract yields. Anything touching Tier I is difficult to come by, thanks to congestion and lack of foresight in infrastructure development.

On this backdrop, it is not surprising that airlines led by IndiGo and Spicejet are exploring international expansion.

International ambitions – wide body or narrow body

IndiGo started international operations in 2011 and since then have kept the international operations restricted. The kind of success it could achieve on domestic routes could not be replicated on international ones for multiple reasons. Some of them are lack of capacity leadership in markets, competition operating wide body aircraft on the same routes, customer preference for full service carriers for international, the nature of international operations being more of feed and Origin – Destination traffic, availability of bilateral rights, timings and so on.

Spicejet, which also kept its operations to minimums on the international side, chose a different path – trying to connect monopoly routes like Madurai – Dubai, where competition was hard to come by thanks to cities like Madurai being out of points of call for Emirates in this case.

With Jet Airways out of picture, the share of Indian carriers in carrying Indian traffic fell drastically. Jet Airways with its robust codeshare partners at Singapore, Hongkong, London and Amsterdam offered multiple options to Indian travelers.

The widebody operations to these gateways, coupled with feed to Etihad at Abu Dhabi made Jet Airways a formidable competitor for European and Middle Eastern Airlines – which have seen added capacity, frequencies and in some cases more points to cater to the traffic.

A large portion of this traffic was one which would go to Europe or North America and while the points in Gulf and South East Asia are being catered to by the narrow body operations of IndiGo and Spicejet, to offer a choice to travelers to go to North America or Europe will need a wide body – an expensive proposition for the airlines or a one-stop flight on the narrow body.

The hub and the factors affecting the hub

Airlines, including Jet Airways, have tried a scissors hub in the past. However, they have rarely relied on its own hub only. Qantas had a hub at Singapore where it operated from multiple points in Australia and to multiple places onwards, akin to what Jet Airways tried at Amsterdam, albeit on a smaller scale.

Low Cost carriers have either setup subsidiaries like Air Arabia or Air Asia group or have tried (so far unsuccessfully) to create an alliance (Value Alliance in ASEAN). On this backdrop, for IndiGo or Spicejet to set up a hub will be something which is keenly watched by from planners across the world.

Network Thoughts

Spicejet’s Ras Al Khaimah plan involves setting up a local carrier, where the airline will operate on the lines of how Air Arabia operated with multiple carriers (Air Operating Permits) across the region or the AirAsia group which has carriers in Malaysia, Indonesia, Thailand and more which feed traffic to each other’s hub.

IndiGo on the other hand is looking at a scissors hub – where it can operate a couple of flights from India and each of them going onwards carrying traffic to different regions of the world.

Both airlines have taken first steps – codeshare. While the IndiGo codeshare is live with Turkish, it hasn’t scaled up to what was envisioned and announced, and its second codeshare is a one-way codeshare with the blame being put on IT systems. Spicejet on the other hand announced codeshare with Emirates but has not yet operationalized the codeshare, despite repeated announcements from the airline.

We look at where these two thoughts could lead each airline and how in our next post, next week.

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