Saturday, July 11, 2009

The short sighted Indian players

When the Indian aviation boom started, many players jumped at the opportunity to grab a share of their pie. The market was studied extensively by various analysts and different business models came out. Each of them was successful in its own way during the early periods. Then as the industry began to consolidate, it underwent a lot of change and attained the first level of maturity.
A mixture of American kind of operations(in terms of routes and fleet) and the customer favoured low cost model turned out to be a model that was tailored for India. So everything was fine on the domestic arena.

At the same time the open skies policy opened up India for new foreign airlines. Code share agreements with domestic carriers helped both of them mutually. It was business time for airliners. Then came the blow. Who would have expected things to have such a rippling effect? The U.S sub prime crisis turned into the worst economic downturn the world's economies faced after the Great Depression of the last century. Pink slips and bankruptcy became household words. Airlines couldn't find passengers. To add to this, the oil prices rose to a new high which meant that it was much more costlier to fly a craft than it was earlier. And a couple of our own domestic players were overjoyed by the new found freedom-Authorisation to start international operations from DGCA after 5 years of golden domestic period. Here is where they failed miserably.
The international market was just recovering from the 9/11 epidemic and was growing. So others have already had an experience with such an aviation crisis. But to the new players it was a whole new world to play in. They went the grand way of opening into traditional international routes that kept the airlines' ledgers ringing. But the fact that these players failed to realise was that these routes were also running in full capacity. Any more addition would only lead to over capacity. The early success enjoyed by Jet Airways was followed by the economic downturn. The true picture came into view. Airlines worldwide were undergoing trimming and route rationalisation. Kingfisher opened with a service that was least favoured at the time. Mallya would have been wiser, had he delayed his international plans and concentrated on the ailing domestic sector. But things weren't as they were to be. Now all the three Indian international carriers are looking down the barrel.

So the first mistake that Kingfisher did was not to look back into its domestic operations. The liquor baron in his hurry to start international operations bought Air Deccan. Had it been mainly to consolidate Kingfisher's position, he wouldn't have changed the business model of it much. His idea of penetrating into deep inner markets of India was great but the method followed was not the best. If the Air Deccan or other LCC model was prevalent then Kingfisher would have garnered a huge market share. Jet Airways realised this and started the Jet Airways Konnect and expanded Jet lite to increase its domestic presence and to build its brand value while maintaining the regular Jet Airways service.

The second mistake was done by both the private carriers. This is regarding their international operations. Both started on traditional busy routes i.e from Bombay and New Delhi, to start on a strong note. But they were actually eating into a pie that was already shared by Air India and was shrinking. During the period of recession these airlines faced severe load factor problems and now the loss has been to all the three Indian carriers. They lacked innovation at the time when it was needed the most.

Kingfisher and Jet Airways with their domestic hubs at Bengaluru and Hyderabad had excellent opportunity to grow their international operations from these two places that they lost. Look at the opportunities. A diversified domestic network that can compliment the international arm. Two private greenfield airports that provided excellent infrastructure and could have made for ideal hubs. They didn't capitalise on these two core points. These are international airlines that are going to serve passengers whose either starting point or destination was India. So instead of catering to Indian needs you can't provide people with given limited options. With traditional hubs like Dubai, Kualalumpur, Singapore etc which have world class facilities a mere 3 hrs distant, Mumbai with its shanty airport would not make for an ideal international hub. One cannot become a truly international carrier like Cathay Pacific or Singapore Airlines overnight. An international transfer from Mumbai was already available from Air India for people . If alternate and nice locations were given, people would have had a wide range of options and everybody wouldn't be fighting for the same route. Jet Airways made a positive move in this direction by making Brussels as its international hub and connecting that to all major cities of India. But it couldn't expand much due to the recession.
In U.S also different carriers provide direct international connections from their hubs. Delta used to fly non-stop from Atlanta to Mumbai . Continental is flying from Chicago O-Hare to Mumbai. These do not fly from the traditional international gateway of New York-JFK. One needs to follow such a model to be successful. The sad thing about the whole issue is both the private carriers had a market in hand which they left out and went at Air India's. That was loss for all the three. Hope the carriers make the necessary changes before getting ready for a new and promising chapter which I hope is just round the corner.