Low-cost carriers (LCCs) are carving their own niche in the Indian skies and are giving a tough time to full-service carriers. Going by the latest trend, India is set to become world’s LCC market. The evolution is very simple—a kind of demand-supply cyclic development. As the disposable income of the middle class continues to rise, correspondingly the demand for air travel is also rising. And in a demand-supply equation, if the former outstrips the latter, the price crashes. This gave birth to a low-fare revolution that caught the fancy of the Indian middle class, which in turn, started demanding for more. Hence more people started preferring air travel to rail or road travel. And piggybacking this middle-class population’s demand, LCCs have notched higher market shares. No wonder, LCCs have carved their own niche market at a rapid rate. But before looking at LCCs’ profiles and their success mantra, let’s have a critical look at the progression of LCCs. LCCs are eating into the market share of full-service carriers, says a study conducted by Centre for Asia Pacific Aviation (CAPA)—a leading specialist aviation consultancy provider in the Asia Pacific region, the Indian Subcontinent and the Middle East.

CAPA has projected that LCCs would control more than 35% of the domestic market by the end of 2006 and even cross the 50% mark by the second half of 2007. In fact, the top three low-cost carriers—Air Deccan, Go-Air, SpiceJet—now account for slightly more than 30% of the domestic air travel pie, as per the latest air travel data with the Directorate General of Civil Aviation (DGCA). Air Deccan has ended June with a 20.3% share, SpiceJet 7.8% and Wadia family's GoAir at 2%. The two full-service airlines—Kingfisher and Paramount—together account for 8.4% of the air travel market. LCCs are truly flying high and in the right direction. Kingfisher, SpiceJet, Paramount and GoAir, which started their operations in 2005, have registered market shares of 8.3%, 6%, 0.3% and 1.6% respectively in the April-June quarter of this year.

As far as other CAPA projections are concerned, LCCs have many reasons to smile. The market share of LCCs in India is likely to touch 70% mark by 2010, making it one of the world's leading LCC markets in terms of total market penetration, according to the study done by CAPA. Taking into consideration the growth potential of the market and deep penetration achieved by LCCs, CAPA has predicted that within the next five years India could see the establishment of a homegrown LCC with the size and scale of U.K.-based easyJet or Ryanair.

There is also a note of caution for the full-service carriers who, on an average are losing a remarkable 1.5% points of market share every month to LCCs. CAPA predicts that the emerging untapped leisure sector will drive the domestic market to more than double in the next five years to around 60 million passengers by 2010. The Indian domestic market has already seen robust growth this year with a growth rate of 50% against the previous annual growth of 25%. And most importantly, LCCs are expected to gobble up most of the new traffic growth. This point is also corroborated by the recent figures issued by DGCA. The market share of India’s first LCC, Air Deccan, more than doubled from 7% last year to 15.2% in the first quarter of 2006. Similarly, the other LCCs have severely cut into the market share of full-service carriers to corner a large chunk of new air travelers. DGCA figures also reveal that other carriers like Kingfisher Airlines, SpiceJet, Paramount Airways and GoAir made a dent into the market share of established carriers like Indian Airlines, Jet Airways and Air Sahara.

Air Deccan, the pioneer in the low-cost sector, has costs 50%-55% lower than full-service carriers owing to its point-to-point routing, more seats per aircraft, no freebies and Internet ticketing. Air Deccan’s current capacity offers 20,000 seats per day on a fleet strength of 35. The carrier is planning to increase the number by 800 seats per day every passing month, taking its fleet strength to 112 by 2012.

IndiGo, the recent entrant in this sector, plans to have 15 aircraft by the end of 2007 and carry 3.5 million passengers with more than 25,000 departures; Spice Jet, which also offers tickets at nearly 40 to 50% discount and has six aircraft serving 12 sectors by operating 49 daily flights, is planning to add five more aircraft to its fleet by December this year; Kingfisher Airlines, with current operations of 97 daily departures, plans to enhance the number to 175 in 10 months; and Go Air, which currently offers 5,000 seats per day and has only three aircraft, plans to add 30 aircraft to its fleet by 2008.

As to strategies, IndiGo lays emphasis upon a single configuration—same number of seats, same engines, same interiors and same engineers, believing that it would reduce maintenance costs and result in a more efficient management. Going by this strategy, the orders that it has placed for 100 A-320 aircraft, are of a single configuration.

On the other hand, a larger number of routes are the key to success for Air Deccan, which covers 56 airports, compared to 44 of Jet Airways, India’s leading full-service airline. GoAir, however, aims to increase the load factor by having an extensive network to make tickets within easy reach of potential passengers.

Analysts opine that airfares will continue to nosedive, as nearly 200 new aircraft will be added to the existing 250 aircraft. Today, nearly 80,000 seats are being offered every day by all airlines catering to the domestic sector and an equal number of seats are likely to be added in the next two years. The number of domestic passengers is likely to increase from 12 million in 1996-97 to 53.3 million in 2016-17. Their simple success mantra is—more seats at cheap rates. Besides those carriers, waiting in the wings are six new players—Jagson Airlines, King Air, Mega Airways, Indus Air and Megapode Airline.