The situation of the airline industry is similar to that of telecom today. Facing high debt and operational costs, aviation players, like telecom operators, are looking for a better policy and regulatory support from the Government. It brings to mind the price wars in the telecom sector, which led to the lowest call tariffs in the world. Although the Government has raised the limit on foreign direct investment in airlines to 49 per cent, Indian aviation doesn’t seem an attractive proposition yet for foreign operators.
The need of the hour is to expand services to smaller cities, but the high airport fees and fuel costs are keeping potential operators away. This has also led to a decline in domestic air traffic. The operators and the Government should recognise the long-term strategic importance of the aviation industry for economic growth and create a favourable ecosystem for all players in the value chain.
Build a ‘miles factory’ model
The low-cost business model has done wonders in many sectors in India, right from telecom to railways. The country is seen as a huge market for goods and services thanks to favourable demographics, rising incomes, and greater willingness to pay for a better experience.
The airline industry should recognise the low-cost business model’s potential to cater to the mass market, with the volume business justifying the return on investment in a capital-intensive industry. In fact, the model has been a success in the European, American and Asian aviation markets.
Innovative strategies are a must for a low-cost model to succeed. Examples of these include the per-minute billing, ‘minutes factory’ model, and micro-prepaid in the telecom sector. Emulating the success of the minutes factory model, aviation should build a ‘miles factory’ model using the volume business strategy. It should generate innovative marketing and business models that cater to the unique needs of enterprises and other customers. Greater co-operation among the various players could be another factor in creating a favourable ecosystem for profitability and sustainability.
For aviation-friendly taxation policy
Undoubtedly, there is a huge demand for air tickets in India not only from corporate customers but also other travellers given the size of the country. The absence of advanced and modern railway infrastructure is another driver for the growth of airline demand. Increase in affordability and time constraints are pushing customers to fly more instead of using roadways and railways. Increasingly, air travel is no longer considered a luxury, but necessity.
However, there isn’t a matching supply scenario owing to several reasons: pricing, operational inefficiency, scams, strikes, high investments for expansion, taxes, fuel costs and so on.
Given the high operational costs, the unused capacity in planes is directly affecting the bottom line of companies. Also, operations should be expanded to tier 1 and 2 cities, where demand is rising exponentially as customers won’t need to travel to metros to fly. The Government should also create a favourable regulatory and taxation policy to help the aviation industry grow and become affordable and accessible to more people.