When looking at major Indian airlines, low-cost carriers dominate the market in the country. Low-cost airlines make up over 80% of the domestic market, relegating full-service airlines to a sliver of the market. This is not a new phenomenon, as seen by the fall of Jet Airways and the struggles of Air India. So why do full-service airlines struggle in India while their low-cost counterparts thrive? Let’s find out.
A brief history
The aviation market in India was not always led by low-cost airlines. Indian aviation has a long and interesting history, which has seen it once being home to state-owned airlines to the bustling rivalry of today. The aviation boom in India started in the early 1990s, thanks to market liberalization policies.
Airlines such as Jet Airways and the now-defunct ModiLuft (which later became SpiceJet) came up during this time. At this time, full-service carriers (FSCs) were the norm in India, while the few budget airlines were considered outliers.
The low-cost surge in India began in the early 2000s, with the launch of carriers such as SpiceJet and IndiGo. The new entrants quickly began threatening the market position of Jet Airways and Air India with their lower fares and strong advertising. By the early 2010s, low-cost carriers (LCCs) had taken the lead over full-service airlines, a lead which would only continue to grow.
The main reason for the success of low-cost airlines in India has been simple: lower fares. The Indian market is notoriously price-sensitive, which means passengers are willing to take whichever airline gets them to their destination the cheapest. Airline loyalty and inflight services all take a backseat to ticket prices, making India a unique market in this regard.
This price-sensitivity strongly works in favor of low-cost airlines. With lower expenses across the board, ranging from lesser staff to a no-frills inflight service, airlines can offer cheaper fares. These cheaper fares have allowed airlines to maintain high load factors, over 90% in some cases, and remain profitable.
By comparison, full-service carriers struggle in the Indian market. The high costs of airlines such as Air India and Vistara lead to higher fares, making the airlines uncompetitive. While these airlines do offer services such as inflight entertainment and meal services, passengers much prefer cheaper tickets. Full-service carriers have continuously lost money in the past few years, and Jet Airways even collapsed in 2019 due to the pressure.
Unlike larger countries, such as the US, India also does not have many long domestic flights (known as transcontinental routes). The longest direct flight within India is just over 3 hours, which does not necessitate a premium cabin. More importantly, business hubs are concentrated in a few regions of India, which are all within two hours of each other. This means business travel, which is a huge revenue driver for FSCs, is largely missing in India. The rest of the market, as we know, is quite price-sensitive.
Another avenue where low-cost airlines shine in India is the connectivity these airlines offer. Due to their high revenues, airlines such as IndiGo and SpiceJet have been able to order a massive number of planes and maintain large fleets. The access to more planes allows airlines to provide more daily flights, new routes, and more connections on high-frequency routes.
The difference between low-cost and full-service private airlines is drastic. For example, IndiGo operates a fleet of 250 aircraft, offering 1500 daily flights, as compared to Vistara’s fleet of 41 aircraft and 200 daily flights. Similarly, IndiGo services 87 destinations (63 domestic and 24 international), while Vistara flies to 36 destinations (31 domestic and 5 international).
The airline has managed to reach this level of connectivity mainly due to its large fleet and high revenues. Even key business routes, such as Delhi to Mumbai, are led by low-cost airlines due to the flexibility they offer with multiple daily flights. The flexibility is more appealing to many business travelers over a premium experience on a two-hour flight.
Air India has not been included in this comparison because, as a flag carrier, the airline offers important routes to a number of low-demand cities. This, combined with vast subsidies from the government, is what has allowed the airline to continue flying despite heavy losses. However, this is set to change in the coming years as Air India heads for privatization.
Is there hope for full-service airlines?
The situation for FSCs in India looks quite grim on the surface. LCCs dominate much of the domestic market and show little sign of letting up in the coming years. However, there is one market that could FSCs can look to for success: international flights. The country is now primed for a new international airline, which will most likely be a full-service one.
The collapse of Jet Airways in 2018, in part due to competition at home, left a massive gap in the market for international flights. Overnight, India was left with only a single long-haul airline which faced its own struggles. The area where nearly all low-cost carriers refuse to wade into is long-haul flying (for now at least), giving FSCs a clear chance to find success in India.
This means both Vistara and a newly-privatized Air India could find widespread success with a booming international operation. Long-haul flights out of India have been led by the Middle East Three, but travelers generally prefer non-stop flights. As Vistara takes delivery of its Dreamliners, we could see competition, and success, on international routes.
The future of Indian aviation looks very interesting. The growing number of passengers has made India the fastest-growing market in the world, and that trend is set to continue. Low-cost airlines will likely continue to dominate the domestic market with their low fares. However, full-service carriers will look to pivot to long-haul, international operations instead. India has a high demand for international travel, especially VFR (visiting friends and relatives) traffic, which means there is clear scope for success.
What do you think about the future of full-service airlines? Will low-cost airlines continue to lead India’s aviation market? Let us know in the comments below.