2008 was the year reality struck home in the Indian airline industry. One whiff of the downturn exposed the lack of robust business planning, and abundance of financial vulnerability of Indian carriers, leaving all of them battered and bruised, some more than others.

We saw mass-scale defaulting on payments by carriers in India to everyone from airports to aircraft manufacturers.

Touted as THE growth sector of the future by both Boeing and Airbus in 2007, in the last nine months, domestic airlines have slashed capacity and with very shallow pockets, pulled back at least one-third of their aircraft orders due for delivery this year.

India’s domestic airline capacity shrank by more than 8%, compared with 3.5% in Japan and growth of 18% in China.

As late as mid 2008 Boeing, Airbus SAS and Empresa Brasileira de Aeronautica SA (Embraer) were projecting delivery of 91 aircraft during 2009. They will now thank the stars if they can deliver the reduced quantity of 57 aircraft expected this year.

Both Boeing and Airbus are claiming that no airline has "cancelled orders", but this statement does not account for the deferrals in delivery and the diversion sales of aircraft by Indian carriers to foreign airlines.

In this highly competitive market, it appears that Boeing has the upper hand. It is facing deferral of only two of its 22 expected deliveries down 10%, while Airbus is down 53% expecting to deliver only 32 out of the expected 68 aircraft in large part due to Kingfisher. Embraer increased its delivery tally to five aircraft up 500% from the projected one thanks to the phenomenal growth of Paramount Airways their main customer

Boeing Customers

Jet Airways with fleet of 111 aircraft accounts for the two deferrals of Boeing. One 777-300ER and one 737. Jet has leased out a significant portion of its wide-body fleet. A total of seven of its eleven uber-luxurious Boeing 777-300ERs to Turkish Airlines THY and Gulf Air, and two each of its Airbus A330-200s to Oman Air and Gulf Air. Jet has called for a further ten per cent cut in seat capacity and is now trying to leasing out its narrow body Boeing 737s.

Image courtesy and copyright A.J. Best. Used with his permission. Please do not re-use without permission.

SpiceJet with 12.5 per cent growth will take delivery of 12 Boeing 737-800s/900s, one each quarter for the next three years adding to its fleet of 14 Boeing 737-800s and 900s.

Air India backed by the Government of India, will take delivery of its new Boeing 737-800s, four 777-300ERs and and three 777-200LRs by September, as scheduled. Air India (domestic and international combined) has a fleet of 150 aircraft. The combined order to Boeing and Airbus was for 111 aircraft.

Airbus Customers

The largest domestic carrier and most aggressive Airbus customer Kingfisher Airlines is in terrible financial shape. It led all Asian carriers with a 17.1 per cent capacity cut and has held its expansion to its existing 76 aircraft not withstanding the fracas with GECAS on four of its aircraft. It has diverted its three of its five A340-500s to Arik Air of Nigeria, the balance two have become "white tails" at Toulouse. Of the five A330-200s delivered, two are lying idle. Kingfisher is now in talks with Arik Air in an effort to lease them. The deliveries of the A380 have been deferred yet again. Even pending deliveries of ATR42s and 72s from the Air Deccan days are languishing at Toulouse. Kingfisher has been forced to defer delivery of 32 of 48 Airbus A320 planes that were due for delivery in late 2008 and in 2009 and is also diverting its narrow body A320 family orders to foreign airlines like Turkish THY. So while Airbus may deliver planes to an Indian airline, the aircraft may never come to India.

IndiGo along with fellow value carrier SpiceJet has been registered increasing market share, and has recently taken delivery of its 19th Airbus A320. It is maintaining a more conservative but steady delivery rate.

Air India domestic (formerly Indian Airlines) will maintain its delivery with Airbus for the narrow body A320 family having recently taken delivery of three each A321-200s and A319-100s. Airbus has also commenced discussions with Air India on the A380 superjumbo and hopes to convince the airline to buy a few.

While both Boeing and Airbus do not expect any new orders from the Indian market in the near to medium term, they continue to be bullish on India and maintain their market forecasts which estimates that the country’s airlines would buy up to 1,100 planes over the next 20 years.

2008 was a torrid year for domestic airlines in India, as recently released figures by the Ministry of Civil Aviation (MoCA) show.

Domestic passenger traffic for the year 2008 fell 5% from 42.58 million to 40.77 million (Fig. 1), driven by the increase in fuel costs, and the massive hikes in air fares, which are yet to fully retreat, and capacity reductions by the airlines.


The Low Cost Carriers (LCCs) Indigo, SpiceJet, and JetLite, improved their market shares at the expense of Full Service Carriers (FCCs) Air India, Jet Airways, and Kingfisher Airlines. IndiGo is the big winner this year with a four per cent market share gain. Air India (the former Indian Airlines), gave up a big three per cent share. (Fig. 2)

The notable exception is Go Air (now called No Go Air due to its numerous flight cancellations), and the former Air Deccan, now christened Kingfisher Red after their acquisition. Kingfisher Red lost five per cent market share, while Kingfisher Airlines gained only three per cent, resulting in an overall loss of two per cent market share to competitors. Clearly the strategy at Kingfisher is not working.


While most airlines and airline groups lost in actual passenger numbers, LCCs IndiGo, SpiceJet, JetLite (the former Air Sahara now a subsidiary of Jet Airways), and Paramount, gained passengers. (Fig. 3).

The capacity swapping at Kingfisher group is clearly visible, and when performance of both Kingfisher Airlines and Kingfisher Red is combined, actual passenger numbers went down 10.5 per cent, from 12.56 million to 11.25 million.


The first two quarters of 2008, provided no clue to the excess capacity in the Indian airline industry. The "perfect storm" of increased fuel prices and reduced economic activity started rearing its ugly head towards the end of Q2 (April, May, June), and kicked the industry in it's teeth in Q3, with a mind numbing 25 per cent drop in traffic. (Fig. 4). Q4 has provided some seasonal relief, but Q1 of 2009 will see numbers dropping back again.


With the exception of Paramount, which has a small niche regional market, all the airlines saw massive drops in passengers in Q3. (Fig. 5). Most airlines staged a recovery in Q4, but the surprise is Jet Airways. It's passenger numbers tanked almost 20 per cent in Q3 and continued the downfall by another 15 per cent in Q4.


The market share of LCCs followed the increase in air fares, as passengers shifted from the FSCs. SpiceJet share in Q3 reflected its financial problems, prior to the Ross bailout. (Fig. 6)

It is an ignominious performance that the pioneer in the air travel bubble, Air Deccan (now Kingfisher Red) has lost over six per cent market share over the year. Clearly many of the "first time flier" passengers have chosen not to repeat, either returning back to trains and buses, or moving to other carriers like IndiGo and SpiceJet.


The data highlights the price sensitive nature of the Indian traveller. IndiGo appears to have a winning formula with its low prices and efficient service. Fancy gimmicks do not work. At a time of economic slowdown, the FSCs have to get their act together quickly. By holding fuel surcharges to unjustifiably high levels, they are surrendering ground to the LCCs and surface transport.

I must tip my hat to the travel agents' associations in India. Their strategy of targeting one airline at a time, has paid handsome dividends.

From a paltry five per cent commission on the basic fare, they have successfully made all the airlines pay three per cent on the gross fare, which includes the fuel surcharges, on domestic fares. Passengers will recognise that very often, fuel surcharges are anywhere from 4 to 10 times greater than the basic fare.

Travel agents represent as much as 85 per cent of the full service airlines' business. By selectively boycotting one airline at a time, the agents focussed all the hurt on one airline, while still preserving relations by continuing to provide services to their customers, using other airlines. In these days of economic crises, and rabid competition, the "non-boycotted" airlines were happy to benefit from their competitor's misery.

Like dominoes, each airline folded its negotiation hand. It started with Jet, then Kingfisher, then Paramount, and finally Air India.

In the history of air travel, prior to this action, only agents in Japan have been able to force a roll back of the zero commission regime. I wonder if it is too late for agents in other countries to learn from the Indian strategy. For all of us, regardless of business vertical, we should take lessons. Prior to negotiation, recognise the weaknesses in the opposite party/parties, if possible target one at a time i.e. divide and rule, adopt a strategy that pressures them, but never, ever, compromise your business survival, by pressuring your customers.

After obtaining concessions from the domestic airlines, the travel agents have now focussed their attention on the international carriers. starting with Singapore Airlines.

Following a failure of negotiations (read re-instatement of agency commission), six associations of travel agents today decided not to sell tickets of Singapore Airlines from Monday, December 29, 2008. Later, they have also decided to boycott, Singapore Airlines' subsidiary, SilkAir from January 1, 2009.

In the case of foreign travel, since the commission is paid only on basic fare, and fuel surcharges do not constitute as significant a component as in the case of domestic travel, the agents are demanding a five per cent commission.

Singapore Airlines, like other foreign airlines, at present, allows travel agents to charge around Rs 1,200 on sale of its tickets as a transaction fee.

A Singapore Airlines spokesperson said travel agents comprised an important element of its business and that it was very much interested in working with them. "Travel agents are getting a transaction fee, around Rs 1,200 per ticket. We think this model is good for the business. The model is working well and we would like to persist with it," the spokesperson said.

However, having tasted success with their "selective boycott" strategy, the associations are firm in their stand, that they would not settle for anything less, than a five per cent commission.

The senior management of Singapore Airlines has rushed to Singapore for "consulatations" with senior airline management. Stay tuned. I am sure, an announcement from Singapore Airlines, capitulating to the agents, will follow, very shortly. After which it will be the turn of Lufthansa, British Airways, Emirates, and other major foreign carriers.

Air India launched (05-Dec-08) a promotional scheme for passengers travelling on its select domestic metro sectors. The scheme titled ‘Winter Warmth’ will be applicable for travel between the four metros - Delhi, Mumbai, Kolkata and Chennai; and also between the four metros cities and Bangalore/Hyderabad.

The scheme, aims at frequent flyers - award of one free return ticket of two coupons on the domestic network of Air India for those undertaking a minimum of eight flights on select sectors between 05-Dec-08 and 05-Feb-09.

The Free Domestic Return Award ticket will be available for all destinations on the domestic network of Air India with the exception of Delhi-Kozhikode-Delhi, Delhi-Kochi-Delhi, Delhi-Thiruvananthapuram -Delhi and Delhi-Coimbatore-Delhi.

The award ticket would be issued in Economy Class to those who have undertaken their travel in either economy class or a mix of economy and business class. However, in case of exclusive travel on Business Class the award ticket would be issued in Business Class. The Passenger Service Fee (PSF) on the award ticket would be borne by the passenger. No FFP points will accrue on the award ticket. The Award ticket authority will be valid for 30 days from the date of issue. Travel on the Award ticket must be completed within three months from the date of issue.


Paramount Airways announced (02-Dec-08) it has launched a promotion - ‘A Sepcial holiday bonanza offer’. The offer allows passengers to purchase one Elite Business class ticket and receive a complimentary ticket* for free. (*INR1500 payable for taxes and surcharge on the companion ticket).

This offer is valid for travel during the peak holiday season. With the introduction of new flights Western India, key cities like Ahmedabad, Goa and Pune are now linked to Madurai.

A new frequent flier programme, ‘Paramount Royale, has also been launched. In addition to upgradation and mileage redemption, Paramount Royale members can also avail of golf club memberships and spa services.

Paramount Airways extended its services to Western India, by launching daily flights from Chennai to Pune. Paramount already serves Ahmedabad and Goa from Chennai.

Commenting on the Pune launch Mr Thiagarajan, MD, Paramount Airways said, “As part of our expansion strategy we have launched the Chennai - Pune sector today. This we believe will help our foray into the western region and we hope to replicate the success that we have acheived in the Southern market. Being a premium airline, we are certain that Paramount would receive a huge franchise from these key market. This flight would be a convenient and comfortable option for Chennai flyers to Pune.”

The airline has also launched its frequent flyer programe “Paramount Royale”.

Paramount Airways adds new routes to its network
Will enhance operations from 62 flights to 66 flights a day in the following weeks
By TBM Staff | Chennai

Madurai based, Paramount Airways is planning to enhance its operations from 62 flights a day to 66 flights a day in the following weeks. The new routes include Bangalore-Vishakapatnam (direct), Chennai-Vishakapatnam (direct) and Chennai-Tiruchipalli (daily). Paramount Airways will also double the frequency of its flights on the Chennai-Tiruvananthapuram route. The airline also plans to launch flights on Chennai-Pune route by July end or first week of August this year. It will induct two new Embraer aircraft in its fleet by end of next month, taking its fleet size to nine. The airline is expanding its route network at a time when most carriers are cutting routes to reduce losses on account of the rising cost of Aviation Turbine Fuel (ATF).

According to M Thiagarajan, Managing Director, Paramount Airways, they have not been affected due to the rising ATF prices, since they do not cater to the train passengers like most other low cost carriers. Paramount Airways, which caters to the top end of the market feels, that the price elasticity of their customers is better and an increase of Rs 500 or Rs 1,000 in the fares does not affect its target group. As per the Ministry of Civil Aviation (MoCA) statistics, Paramount Airways recorded the highest seat factor for May, 2008. The seat factor for Paramount was 81.2 per cent, while that for Air India (domestic), Jet Airways, Deccan and Kingfisher Airlines was recorded at 61.2 per cent, 73.9 per cent, 71.5 per cent and 70.1 per cent respectively.

Source : TravelBiz Monitor