May 30 issue - This summer, say experts, the Indian airline business will explode, in ways both good and bad. There will be more airlines, more flights and, thanks to more robust competition, lower fares. The country's first discount airline, privately held Air Deccan, started operations in August 2003. Five more discount carriers (four privately owned) will join it in the market this summer. What's more, the number of international flights into and out of India will double. State-owned Indian Airlines has been granted permission to fly to several major foreign cities. Meantime, foreign carriers, including Saudi Arabian Airlines, Northwest Airlines, Thai Airways and Air France are all expanding their service to India. Virgin Atlantic has launched a London-to-Mumbai flight.
That's all welcome news for travelers. The downside is that India's already over-burdened airports are in no condition to cope with the surging passenger demand—and customers can expect plenty of headaches. "There are huge infrastructure issues," says Kapil Kaul, Indian Subcontinent and Middle East CEO for the Sydney-based Centre for Asia Pacific Aviation. The airports in New Delhi and Mumbai, for example, each have only one runway, which limits the number of takeoffs and landings to 25 per hour—half the rate at most international hubs. Delays, already common, are likely to worsen. So could the terminal queues at peak travel times. New Delhi has only two relatively small terminals for domestic and international flights.
India is working on the problem. Last year the country raised the cap on foreign investment in the aviation sector to 49 percent (from 26 percent), facilitating a burst of airport-renovation and -construction projects. There are plans to modernize some 30 airports by 2009. New international airports are under construction in Hyderabad and Bangalore. But most of the modernization schemes are still in the early stages. Vijay Mallya, a businessman and member of Parliament who sits on the Parliamentary Consultative Committee on Civil Aviation, asserts that some airport congestion problems could improve noticeably in six months. But others are skeptical. As one analyst put it, "Like most things in the country, it will be two steps forward and one step back."
Mallya, the head of the UB Group (a major liquor company), is one of India's new airline entrepreneurs. His start-up, Kingfisher Airlines, is a full-service carrier that will use some of the principles of low-cost operators to reduce fares. The other new entrants (Air India Express, SpiceJet, Indus Airways and Air One) will operate like Europe's Ryanair and EasyJet and plan to offer domestic tickets at prices at least 25 percent lower than existing full-service players.
The new airlines are a response to pent-up demand. According to the Directorate General of Civil Aviation, the number of domestic passengers grew by 12 percent in the year ended March 31, 2004 (the most recent data available), and is expected to jump 20 percent more this year. International-passenger numbers are also ballooning. The Centre for Asia Pacific Aviation estimates that the number of commercial aircraft in service will increase from 175 to 450 by 2010, a figure one industry watcher calls conservative. It's a big opportunity for both Boeing and Airbus. Last month the board of Air India approved the purchase of 50 Boeing planes in a deal worth about $7 billion. The purchase will more than double the state carrier's fleet.
Experts say the new low-cost carriers will ultimately drive prices low enough to compete with the Indian railways. Some 14 million Indians travel by train every day. According to G. R. Gopinath, founder and managing director of Air Deccan, the same 600 million Indians who make up the emerging middle class targeted by consumer-goods companies are just a step away from being aviation customers.
The cheap flights thus could initiate a secondary boom in tourism, both international and domestic, one of the fastest-growing and most underexploited industries in India. Tourist arrivals jumped nearly 23 percent in 2004 (to more than 3.53 million), but India still lags far behind other countries in the region despite its ancient history and cultural and geographical diversity. Unlike in Europe, however, where a glut of underutilized tourist facilities helped to facilitate the emergence of low-cost airlines—and with them the concept of short-haul, short-stay tourism—India's smaller hotels, bus companies and other auxiliary services may not be ready for the new business. Neither are the airports, but that's the price of rising prosperity in a fast-growing country.