We are spoilt for choice when it comes to choosing an airline to fly with, with different airline firms offering cheap prices and competing with each other for better and better deals. In fact, we have mentioned previously how competitive long-haul routes have become, with 50% of fares between Europe and Asia being run by low-cost carriers.
But the US and European markets don’t hold a candle to the Indian airline landscape, that is currently in a gargantuan and crippling price war. India is the 2ndmost populated country in the world with more and more travellers every year, with predictions that it will be the third largest aviation market by 2025. With prices now at a historic low with some flights being offered for as cheap as $0.02 USD, how will the airlines survive?
A history lesson
Originally, most of all domestic commercial travel in India was operated by a government encouraged monopoly, India Air (The government owned 76% of the company). In 1994, the Indian government broke up the industry, disinvested and allowed new low-cost carriers to enter the market.
In 2015, Spice Jet ran a promotional campaign offering seats on their flights starting from two cents. This was followed by Singapore Air’s domestic competitor dropping their fares by 40%. As these low-cost carriers had started to take large chunks of market share, full-service airlines, such as Jet Airways in the Indian domestic market had to reduce their prices to compete.
The current situation
This price reduction has led to some of these airlines experiencing financial problems, such as Jet Airways who has had their stock price fall by 66% in 2018, reporting profit only in two-quarters of the last eleven. It has become so bad that they are now asking for help from companies such as Boeing and may be completely bankrupt in less than 60 days.
To combat this and to make more money, they have been looking at several options for reducing their fleet from owned planes to rented planes. By shifting some of their new Boeing 737maxs that they have ordered to rentals from Boeing instead they can reduce the amount of financing that is tied up in deposits. Additionally, Jet Airways have asked their staff to take a 25% pay cut for the foreseeable future to help reduce their costs.
It does not stop there, as it looks like the Indian domestic market is about to go up to the stratosphere with Qatar Airways new chairman announcing they will be launching a new full-service domestic carrier into the marketplace.
“I will not tell you what types of aeroplanes we will deploy in India but as you may remember we said that we will launch an airline in India which will have a fleet of at least 100 aircraft,” – Akbar Al Baker, Chairman of the board for Qatar Airways.
This new airline will be funded by the Qatar governments investment authority, an arm of the state that was set up in 2005 to manage 335 billion oil and natural gas revenue. They have seen that the Indian domestic market has double-figure growth year on year and sees it as an investment opportunity.
It remains to be seen if the current airlines will survive this price war and closing competition.