Low-Cost Airlines in India: Took off with Pride, Landed in Troubles



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Code :BSM0048

Year :
2009

Industry : Transportation

Region : India

Teaching Note:Available

Structured Assignment :Available

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Introduction:With the introduction of open sky policy in 1991 and the consequent deregulation of Indian aviation, private players have transformed the industry. However, with the emergence of Low-Cost Carrier (LCC) model in 2003, the industry was revolutionised. Pioneered by Air Deccan, the model relied on cutting costs in every possible area and pass on the benefits to customers. With tickets sold at a price as cheap as INR 500, the low-cost model triggered huge growth in air traffic with passengers estimated to reach 50 million by 2010. To tap the growing opportunities, nearly four LCCs entered the industry in 2005. To lure more passengers, LCC players decreased their ticket fares to uneconomical levels and expanded capacity that increased cost. However, with the rise in the ATF prices, this high cost, low price spiral led the LCCs into losses. In order to break even, they tried to increase fares, but it impacted the load factors. Caught in a vicious cycle, Air Deccan merged with Kingfisher, while GoAir shifted from the LCC model and added business class in its aircraft. With the country left only with two loss-making LCCs, SpiceJet and IndiGo, the question regarding the sustainability of the LCCs in the long run arises.

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