No Frills Airlines: Will The Market Bite?

Time is money and for long the underlying sentiment among travellers was a yearning for faster connectivity at a cheaper price. Finally, travellers now have the option, which marries the two - No Frills airlines. Charmaine Fernz explores this new offering…

Southwest Airlines, Easy Jet, Ryanair, Jet Blue…and now, our very own Air Deccan. Do these names ring a bell? They are all low cost carriers better known in the aviation world as 'No Frills Airlines'. The 'No Frills' concept, when it took off, was a roaring success in the west. US-based South West Airlines, began operations with one aircraft in 1973, and is now a US$ six billion company. The primary objective was and remains faster connectivity at a cheaper price - to transport a passenger from point A to B in the shortest possible time at the most affordable price. Which means no in-flight services, hot towels, piping hot meals and posh interiors. There will just be one or two airhostesses on board since the law mandates that there should be an airhostess or a steward if the number of passengers is more than 10.

The Indian Avatar

In India, the concept in its entirety has only caught on now with the launch of Air Deccan, a company founded by G R Gopinath, a former captain of Indian Air Force. And, the trend appears to be here to stay. What made Gopinath, who's also the managing director of Air Deccan, get into this business? He explains, "We were already successfully into the business of chartered flights where we got a lot of calls from people wanting to go to destinations that were unconnected. This started the initial thought process. Our country is vast, the infrastructure is poor, air connectivity is bad; all these factors were considered. I started to think seriously about a low cost regional airline and studied the success of South West Airline of US and Ryanair in Europe. Ryanair is posing to be bigger than British Airways and it seems to have a market cap greater than British Airways. Then I realised that if anybody needed low frill aircraft, it was India. The country has a large middle-class population, which is almost the size of Europe as some people put it. Also, now the country has undergone a sea-change economically, which has generated vibrant cities like Belgaum, Vijaywada, Hubli. There is a critical mass in these regions."

The Business Proposition

The Indian travel scene is undergoing a metamorphosis with more disposable income resulting in increased travel. However, though there has been a transformation, the Indian psyche remains unchanged - value for money rules. Bearing this in mind, will the concept catch on in India? Explains Subhash Goyal, president, Stic group of companies and expert committee on tourism and civil aviation, ASSOCHAM, ”The role of an airline all over the world is undergoing a great change. The revolution, which was started by Sir Fredi Liker, who introduced a ‘no frills’ airline and which flew passengers for a 100 pounds between London and New York, was a great success. But, the big players who were operating airlines like British Airways and TWA etc started competing so aggressively that Liker’s ‘Sky Train’ could not survive. However, with the coming of the Internet the situation has completely changed.”

Fredrick Divecha, senior vice-president, SOTC elaborates further, "The concept of a no-frills airline has proved to be very successful abroad. This is due to the fact that this kind of an airline will cater to both, the old and new markets thus enabling a much required shift from other traditional modes of transportation. In India, there is a huge market for this kind of economy travel. Such an actuality will reduce travel time between small cities where the medium of transportation has been restricted to buses and trains."

Bearing the cost factor in mind, the main criterion for launching a low cost carrier in India was to make travel a feasible option and wean away the top end of the air-conditioned rail passengers since the prices were just slightly more than that for a Rajdhani ride. The target audience though is the upper middle class. Fares have been priced in the range of Rs 1,700 (US$ 36.9) to Rs 3,200 as the longest sector will be about an hour-and-half for the moment.

"The concept will catch on in the Indian market since in the one-hour of travel time, passengers are not worried about what they are going to be served. The food costs are converted to fare reduction and they are happy about it," says Gopinath. Going by recent news as reported in the press, "Governments in the eastern region have started to look around for a local 'Deccan Air' for the zone. As a first step, West Bengal has approached the union government to revive number of abandoned airstrips in districts of the state to promote regional air travel between Assam, Bihar, Orissa and Chhattisgarh. Work is also on to revive air strips in Malda, Balurghat and Coochbehar so that regional service can be introduced connecting Kolkata with these towns and other eastern region centres Patna, Ranchi, Jamshedpur, Bhubaneshwar, Bagdogra and Guwahati." This definitely is a positive sign.

Clipping The Frills

With cost cutting being the current norm of most companies leave alone travel, 'No Frills' will have takers. Another market for 'No Frills' are those who prefer to travel internationally to South East and Middle East Asian destinations rather than travelling domestically because it is more affordable.

“The start of Air Deccan as a no frills airline in India further goes to prove that commuter's want fast, safe and efficient connectivity and do not bother much about food, cutlery and the air hostesses on board. All they want is value for money. So, I personally feel that no frills airlines will certainly boom and all big players will have to play ball,” says Goyal.

Subsequently, with international airlines as well its domestic counterparts constantly innovating to offer its passengers incentives by the dozen, be it flat beds, multi-cuisine options or even faster technology, where do low cost carriers stand a chance? Explains Ashwini Kakkar, CEO and managing director, Thomas Cook India P Ltd, "The smaller businessmen in India want to go from point A to B in the shortest possible time, which these carriers offer. Added to that, the journey is affordable. So, what more would they want?"

Conversely, Gautam Chadha from Tirun Travel Marketing says, ”I do not refute that the concept will not work at all but we will have to consider the ‘differentials’ like on providing meals on board and a lot more. Even, if any such airline operates it will use old aircraft, do away with the agents and has to have paperless tickets and all this will not allow the airline to build credibility and putting a proper mechanism in place requires big investments. I do not see that happening soon, as we are actually not ready for that at this point of time. Unless and until, there is a drop of about 30 per cent in the operational cost of an airline which at this point of time is not possible because of sales tax on ATF, navigation charges etc. No frills airlines will have a major impact on the route service.”

Yet despite debatable view from the industry it is given to understand that on the Indian domestic scene, as reported in the press, "Alliance Air may even start service with a 17-seater aircraft. The airline does not need to buy them since these aircraft are available on dry lease."

Booking Process - Easy Come, Easy Go

Technology rules the roost. That is evident with the launch of e-ticketing, mobile update etc. Bearing that in mind, Air Deccan has made use of information technology to make things more viable. Says Gopinath, "We were able to create technological solutions at a cost almost 1/10th of the others. While regular airlines use the Global Distribution Model for ticket booking, we have created an Internet-based model. We have a 24-hour call centre and local numbers for each region like Bangalore, Hyderabad, Chennai, Mumbai and Delhi. Therefore, when a customer makes a call, it is a local call charge for him. Thus, we have only one centre for the entire country rather than having centres all over, which saves costs. The call centre is linked by a Virtual Private Network (VPN) on the internet to the reservation system, which in turn is linked through a VPN to the Citibank terminal for payments. A customer cannot make a reservation without paying. The customer then gets a reservation number, which he has to present at the airport to get a boarding pass. One can also get a ticket via the computer. Tickets can also be purchased from certain travel agents, to whom the customer has to pay and the travel agent in turn uses his credit card to make the payment and gives him the ticket. This is for those who do not have access to Internet. We are also in the process of having retail agents in all cities. We have started this facility in Bangalore and will be expanding to other cities as well."

What Lies Ahead

It is noticed that full-service airlines are retoolling in the direction of 'No Frills' carriers, in an effort to cut costs. For example: American Airlines is offering bag lunches rather than hot meals on almost all domestic flights, trying to turn its planes around more quickly and cutting first-class cabins on certain US sectors and some European cities. The old amenities might then disappear from the industry. The danger for such airlines is that their products might become so diluted that they no longer differentiate themselves and satisfy anyone.

As experts say, airlines are a lot like hotels. You don't want to confuse the brand. That is why you have Marriott, and for a lower price you might have Courtyard by Marriott. Nevertheless, the brands are different. Southwest Airlines and its profitable no-frills cousins - including Ryanair, Easy Jet and others across the Atlantic - have shown that niche marketing can work with great success in the airline business. In many cases, the low-cost airlines have created a new market: people who would never have flown because of high price. This is probably bringing in a new era into the aviation sector in the country. As Divecha puts it, "There is tremendous potential to succeed given the prolific growth rate in the travel industry. However, the market for domestic air travel will rise over 10 times its current size should air travel become 50 per cent cheaper than what it currently is."

Meanwhile, being the first 'No Frills' carrier in India, Deccan Air is planning to stay ahead. "We have been able to connect most of the unconnected destinations. We are planning to have 70 flights a day by December this year. We are also expecting a turnover of Rs 250 crore this year and by next year we plan to achieve about Rs 500 crore which would ideally mean that we are saving the public almost Rs 250 crore, when compared to regular flights. On general terms, India is where 'low frills' will work," concludes Gopinath.