The Hindu Business Line : Market trends behind Air India's budget airline move

THE decision of the Air India (AI) board to start a low-cost airline is now seen as an attempt to keep up with the market trends and to take on the impending challenge from other international airlines keen on starting low cost airline operations to India.

In Malaysia, the low cost airline, Air Asia, has already launched its operations and though it has not yet started flying to India, it seems interested in doing the same. Similarly, another low cost airline in the Gulf region, the Abu Dhabi-based Air Arabia is keen to start operating to India. Besides, Singapore Airlines and Thai Airways International, which operate several flights a week to different destinations in the country, have also announced their decision to launch low cost airlines.

While the Indian Government has not yet given permission to these or other low cost airlines to start operating to India, many feel it is only a matter of time before low cost airlines start winging their way into the Indian skies. Incidentally, Gulf Traveller, an all economy full service sub-division of Gulf Air, has already started operating to India.

With the current high cost of operation, AI would have found it difficult to compete with these low cost airlines. But with the decision to launch a low cost airline to be operated as a 100 per cent subsidiary, Air India Charters Ltd, it should be able to keep costs under check.

The airline plans to take staff on contract and employ several other methods to ensure that the cost of operation is kept low. Itplans to lease 14 Boeing 737-800 aircraft and hopes to start operations in April next year. AICL will fly from Delhi, Mumbai, Chennai and Kerala apart from offering fares that will be 25 per cent less than existing levels.

While AI's decision to launch the low cost airline will be welcomed by different sections of the market especially the labour class which travels to the Gulf and the Far East in search of employment, only time will tell whetherthe project would be a success. For instance, in several of the markets to which AI flies including the Far East and the Gulf region, the airline could face challenges from existing and soon-to-be-launched low cost airlines. Besides, sections of the industry feel that it would have been better to start a low cost airline after the process for privatisation of AI is started.

``The new airline is being launched with AI being in losses. What is there to prevent the new project also running into problems that are being faced by AI, when it starts operating?'' sources questioned.

The move could also force the hands of the other State-owned airline, Indian Airlines, to consider launching similar operations, especially as the airline operates to most of the destinations for which AI plans to operate the low cost airline.