The Rise of the Indian Low Cost Carrier

Transcription

1 FINANCIAL INSTITUTIONS ENERGY INFRASTRUCTURE, MINING AND COMMODITIES TRANSPORT TECHNOLOGY AND INNOVATION PHARMACEUTICALS AND LIFE SCIENCES The Rise of the Indian Low Cost Carrier Emma Giddings Partner, Abu Dhabi March 2012

2 Some History Air Corporations Act Nationalised the entire Indian aviation industry; only two carriers Air India and Indian Airlines private sector air taxi operators (not scheduled) - Jet Airways, Air Sahara, Modiluft Air Corporations Act repealed - private carriers permitted to operate scheduled services By Only Jet Airways and Air Sahara survived Further liberalisation including foreign equity of 49% or 100% for non-resident Indians in airlines, more licenses are issued to privately owned carriers, ambitious Civil Aviation Minister Indian scheduled carriers with min 5 years operations and min 20 aircraft permitted to operate scheduled international services The Great Indian Aviation Boom - and that is where our story starts 2

3 The Great Indian Aviation Boom Praful Patel (Civil Aviation Minister) Air Travel Revolution The expansion of air transport in India is among the fastest in the world (IATA) Between new airlines started in India, aircraft fleet increased from 175 planes to 275 planes and firm orders placed for 482 new aircraft. Causes - Deregulation, predicted economic growth in India, rise of the middle class, increase in inbound and outbound tourism, retail boom - cargo increase, increase in disposable income also relatively cheap finance and liquid banks, the rise of the low cost carrier 3

4 Low Cost Carrier - The typical model No frills - i.e. no in-flight entertainment, no complementary meals and drinks Single class and usually no allocated seating Operation to secondary airports Single aircraft type Quick turn around time Ticket less travel - internet booking But how would this translate to the Indian market? 4

5 The First Indian Low Cost Carrier Air Deccan established by Captain Gopinath Aim - To enable every Indian to fly at least once in his lifetime First airline to fly from cosmopolitan areas such as Bangalore to second tier destinations like Hubbali and Mangalore Targeting - train travellers - 16 million people travel by train per day as opposed to 19 million by air a year 5

6 Other Indian Low Cost Carrier Entrants 2005 SpiceJet GoAir Kingfisher (sort of although rejected low cost model) Air India Express Paramount (low cost business class) 2005 Magicair 2005 Indus Air InterGlobe Airlines Limited (IndiGo) MDLR Airlines (low cost religious tourism) 6

7 The Survivors To date the only surviving Indian low cost carriers are: IndiGo Air India Express - State owned Jet Konnect/Jet Lite - Formerly Air Sahara now owned by Jet Airways SpiceJet Go Air 7

8 So what happened? Economic downturn - growth not as much as expected Lack of liquidity - debt crisis, increase pricing High fuel price and taxes Too much competition - price wars and consolidation Competition for pilots, storage and slots Number of airlines outpacing modernisation of infrastructure 8

9 What distinguished the survivors? Clear and coherent business plan - low cost means low cost Adaptation of the low cost carrier model to the Indian market Focus on priorities relevant to customer - reliability Focus on essentials - flight crew training, pilots Industry knowledge - experienced management team 9

10 Future Challenges Competition - especially with state run carriers - artificially low fares Second economic downturn and lack of liquidity Currency depreciation - reduced value of rupee High fuel prices Jurisdiction risk - despite Cape Town Tax and regulatory burden - withholding tax on rentals, RBI approval for external borrowings and payments but Government looking at reducing burden Lack of progress on infrastructure 10

11 But to the winner...the spoils Recent figures show that LCCs make up an estimated 70% of scheduled air passenger services Passenger volumes are increasing % in July 2011 up from 18% in the first half of 2011 Although India s overall economic growth has stalled of late, it is still growing There is all to play for 11

12 Disclaimer The purpose of this presentation is to provide information as to developments in the law. It does not contain a full analysis of the law nor does it constitute an opinion of Norton Rose (Middle East) LLP on the points of law discussed. No individual who is a member, partner, shareholder, director, employee or consultant of, in or to any constituent part of Norton Rose Group (whether or not such individual is described as a partner ) accepts or assumes responsibility, or has any liability, to any person in respect of this presentation. Any reference to a partner or director is to a member, employee or consultant with equivalent standing and qualifications of, as the case may be, Norton Rose LLP or Norton Rose Australia or Norton Rose Canada LLP or Norton Rose South Africa (incorporated as Deneys Reitz Inc) or of one of their respective affiliates. 12

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