Price war era enters aviation space

Mon, 25 Feb Pre-Open

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The Indian airline industry is witnessing price wars. Very recently Jet airways and SpiceJet slashed their fares by a huge amount to garner passenger traffic during lean season. And with a new carrier, AirAsia, all set to enter the Indian market, price wars and competition in the aviation space are likely to intensify further.

AirAsia, a low cost airline, has entered through a partnership with Tata Sons and Telstra Tradeplace to establish itself in India. And it has made it very clear at the outset that the key differentiating factor between itself and competition would be pricing. This indicates that the stage is all set for further price wars. To begin with, the company will start the operations with 3 to 4 airbus and then gradually scale up the fleet size. Also, in the initial phases it would focus on Southern India where it already has presence.

So, will the arrival of AirAsia change the competitive landscape of the Indian aviation industry?

AirAsia is basically a low cost carrier (LCC). And in India 3 LCCs namely IndiGo, SpiceJet and GoAir have 70% of the domestic market share. Thus, arrival of AirAsia might shake up the other LCCs if pricing (by AirAsia) does happen to be a differentiating factor. However, it may be noted that India's aviation cost structure is different from foreign markets. Fuel costs are higher in India. Also, one has to pay landing and parking charges as well. Overall, the operational costs are high. Thus, the probability of failure is high if costs are not controlled tightly.

Thus, it would be interesting to see what kind of operational efficiencies AirAsia can bring in to its LCC model. Predatory pricing strategy can backfire as it did for Deccan Aviation. Nonetheless, whatever the strategy, one thing is for sure that competition is going to intensify. And the biggest beneficiary of it would be the consumer. Not only will he have different options to fly with but the prices will also be in his favor.

It would be interesting to see whether AirAsia will be able to compete with likes of IndiGo and SpiceJet which are best managed LCC models in the Indian space. While the top management would have obviously done their homework before planning to enter into India it is certain that their journey will not be that easy.