Aviation expert from CAPA predicts more consolidation for airlines in India

Closing off the Indian Aviation Special Month here at SimpliFlying, this week, I’d like to share with you an exclusive interview with Binit Somaia, Director India & Middle East, at Centre for Asia Pacific Aviation (CAPA), based in Sydney, Australia. CAPA is a leader in consulting and advisory to airports, airlines, investors and governments on business and strategic issues. Binit himself is a treasure trove of knowledge when it comes to Indian aviation. I was privileged to have an enriching interview with him on the challeges and future of airlines in India, as well as what branding means to airlines there. So, without much further ado, let me dive straight into the interview.

SimpliFlying: India has a lot of first-time fliers. What’s different about marketing to first-time fliers vs frequent fliers?

Binit: First time fliers may be quite apprehensive, and they require reassurance that the experience will be a pleasant one. Apart from the actual act of flying, in a market such as India flying for the first time can involve crossing social barriers which can in itself be quite daunting. Low cost carriers have made flying affordable for some who might otherwise never have dreamt that they could fly, something which was once a preserve of the elite.

However, apart from Air Deccan, which pitched itself as the common man’s airline (see video below), it is not obvious that any of the other carriers have made an effort to specifically appeal to first time fliers, but end up getting them anyway. Air Deccan’s ethos was built around first time fliers and their marketing included a wonderful television advert that captured the mixture of nerves and excitement that a first time flier feels and portrayed itself as the airline that understood and would take care of such passengers.

SimpliFlying: India is well known for disorganized retail and non-traditional channels. Which are the key channels through which Indian airlines build its brand awareness among the target markets?

Binit: Indian carriers have generally pursued quite traditional channels for brand building, namely print media advertising and outdoor billboards. Television has not been a major medium due to cost. Kingfisher has probably adopted the most diverse approach – the airline has been associated with sponsorship of the Indian Premier League and Formula 1, whilst it also benefits from the fact that Kingfisher is a brand beyond the airline and it benefits from the spin off of initiatives such as the Kingfisher Calendar and promotion of its water and beer. Air Deccan when it first launched made efforts to promote its presence in the smaller towns and villages by sending branded vans into rural India, which also doubled as booking locations.

SimpliFlying: Do you think a strong brand can soften the impact of downturns on airlines?

Binit: In an economic downturn, where people are reducing consumption it’s questionable whether strong brands will prevent travellers from flying less per se. However, individual airlines with strong brands may benefit in two ways 1) they may be in a position to maintain stronger yields because of the value of their brand and 2) in times of uncertainty, passengers may prefer to travel with a brand in which they have greater confidence and trust – therefore a strong brand allows them to increase their market share even though overall industry traffic may be declining.

SimpliFlying: Which Indian carriers will be the first to emerge out of the crises. What puts these in such a strong position?

Binit: At present all Indian carriers are losing money and have weak balance sheets. However, amongst the 3 full service carriers, Jet Airways and Kingfisher, have excellent product, strong brands and loyal followings. Air India on the other hand is facing severe problems with its integration with Indian, and political interference and lack of direction mean that the national carrier is likely to continue to struggle. Amongst the low cost carriers, as most are privately held it is difficult to know the exact state of their health. However, Indigo and SpiceJet have established themselves as consistent and reliable operators.

SimpliFlying: What role does the travel agent play in the Indian Industry?
Binit: In the full service space, travel agents control about 90% of sales. In the case of low cost carriers this figure is probably closer to 70-75%. In fact it is understood to have dropped lower, however aggressive promotion by Online Travel Agents saw the travel agent community reclaim some its market share.

SimpliFlying: How big a constraint is infrastructure in Indian carriers’ growth?

Binit: Airport infrastructure has certainly been a constraint in the last few years – many airports are operating at well beyond their design capacity resulting in delays, congestion and a poor passenger experience. The delays mean that airlines are unable to operate efficiently which increases costs. However, a major upgrade and modernization program is underway and improvements are being seen. It will still be a couple of years before all of India’s major metros have world class airports, but we are on the way.

SimpliFlying: What role will foreign carriers have to play in the Indian market, given the regulations?

Binit: At present foreign airlines are barred from holding any equity in an Indian carrier – although foreign non-airline entities may take a shareholding of up to 49%. In light of the poor financial health of Indian carriers, there is a desperate need to raise capital. The most likely investors in the current environment are those that have a strategic interest, namely airlines. As a result, the government appears to be set to relax the restrictions to allow foreign carriers to hold up to 25% in Indian carriers. There are likely to be a number of interested parties if this was to happen, which apart from capital would bring in much needed expertise into the sector.

SimpliFlying: Do you see more consolidation in the Indian aviation industry?

Binit: There are too many airlines in India at present and with their current financial state, consolidation is inevitable and desirable, either through merger or through market exit.

SimpliFlying: What do you see as the biggest threat and the biggest opportunity in the Indian market?

Binit: The biggest threat is that airlines do not take the necessary steps  to reduce capacity. If they fail to do so, the likelihood is that there will remain an urge to discount heavily to fill seats, the result of which will be to diminish overall yields and revenue. The biggest opportunity is the fact that we are only at the beginning of the growth curve. Even today, after domestic traffic has tripled in the last 5 years, it is estimated that only 2% of Indians travel by air in any given year. The growth potential is enormous.

SimpliFlying:Your predictions for aviation in India in 2009?

Binit: 2009 is going to be another tough year for Indian carriers with demand expected to remain soft for the first half and picking up from around Q3. However, fuel prices are low, airports are improving and if airlines can remain disciplined about capacity they can at least stem losses, even if they can’t return to profitability. The key is to stabilising the situation, raising cash cover to cover requirements and being ready to take advantage of an expected upturn from 2010 onwards.

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Showing 9 comments
  • Akshaya Gawarikar

    Current economic conditions does not creat an amicable environment for mergers,however once the money starts rolling in,The scene might just change.

  • Aveek Roy

    In the recent past Kingfisher and Jet Airways got into some understanding with regards to certain routes they ply. This may be an indication towards consolidation.
    Merger/ acquisition are also likely. In one of the recent edition of “Mint”, there was the news that Spicejet looks forward to take over other airline. This need to be further corroborated, but is another indication towards consolidation.

  • Aamer Quraishi

    I personally dont forsee any airline disappearing, though position is dire but Indian carriers will come out strong because of the huge domestic market opportunity in India. Yes yeilds are low, but volume is high.

  • Bony Sharma

    airline are trying to cut costs; most have realized expat pilots / techs was not the best solution to operate domestic flts and are now trying hard to cut these foreign pilots contracts.

    DGCA and Civil Aviation ministry needs to make rapid changes to the way they create hurdles for the airlines.

    Safety is always of prime concern for every airline; we don’t want to see Indian aviation going in the direction of Indonesia. DGCA must make it their prime concern to ease the process of local pilots / techs to be qualified within India hence lowering the cost for the airlines.

    Over capacity is being managed now; however airport infrastructure is completely inadequate and needs urgent FDI into this sector.

  • Kenneth J. Goldstein

    India is just following what has been going on for some time in the rest of the world. The BIG factor that is pushing airline consolidation worldwide is the economic crisis and it has only just begun. Forget about “Open Skies” in this country (USA) that had been negotiated under the previous administration as the “sick” legacy carriers here will go the way of DL & NW but without any control by foreign carriers. LH’s investment into Jet Blue will be the maximum allowed but you may see Aer Lingus finally be taken over by Ryanair.

  • Alessandra Martina

    the small ones will be blown away; only the super big like AirIndia/Indian Airlines will survive. same as in europe.

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