Small airlines make big jump in market share

Hopper, short-haul flights lift performance.

Independent small carriers IndiGo, SpiceJet and GoAir have collectively been able to gain a greater share of the airline passenger market despite the consolidation and merger of the bigger airlines.

Figures released by the Directorate General of Civil Aviation (DGCA) for last year show that the consolidated share of the three independent carriers went up 10 percentage points to 22 per cent from 12 in 2006.

The smaller airlines appear to have gained at the expense of the bigger airlines that spent most of the year in mega-mergers and acquisitions.

The Jet Airways-JetLite combine, Kingfisher and Air Deccan and the domestic operations of Air India (formerly under Indian Airlines which merged with the state-owned international carrier) saw market share fall from 88 per cent in 2006 to 78 per cent in 2007.

Experts said last year saw most of the bigger carriers moving away from ultra-cheap fares and rapid expansion towards smarter route- and fare-planning for better yields.

But what have the independent carriers done right despite the financial clout and larger reach of the big boys?

Industry experts said while most full-service carriers concentrated on point-to-point services, the three smaller carriers put 25 to 30 per cent of their flights on hopper flights (that is, flights that touch down in more than two cities).

By doing so they were able to improve both passenger load factor and yield per seat.

"If the load factor in such flights is above 60 per cent, yield per seat would be 15 to 20 per cent more than a direct flight in the same sector since you would be selling the seat twice," said a senior executive of a low-cost carrier.

SpiceJet, for instance, has indirect flights from Delhi to Coimbatore via Hyderabad.

"The indirect flight model works out in this sector because there are very few direct flights from Delhi to Coimbatore. And in such cases people choose to take an indirect flight, that would lead to healthy load factors and thus better yields," said a SpiceJet executive.

SpiceJet's market share increased from 7 per cent to 9 per cent last year. The number of passengers it carried increased 69 per cent to more than 3.7 million.

IndiGo is choosing cities that have been under-served by other carriers and lack connections to other cities.

"For instance when IndiGo opened in Bhubaneswar, it connected the city to Delhi, Hyderabad, Bangalore and Kolkata instead of just opting for one route. This gives it access to a larger passenger segment and produces better yields," said a source close to the company.

Last year, IndiGo had a market share of 8 per cent against just 1 per cent in 2006. This was achieved on the back of massive fleet expansion (it more than doubled its fleet from six to 15 aircraft during 2007).

The carrier also more than trebled its frequency from 32 to 108 daily flights in 2007.

IndiGo's strategy has also been to connect apparently unviable sectors, like the north-east, far in excess of the aviation dispersal route guidelines, which require airlines to ply some unviable routes to qualify to fly to big cities.

"IndiGo has gone to destinations like Imphal and Agartala offering lower fares, which increased its load factors and helped it establish its market there," said an industry expert.

However, GoAir, which has not been able to expand significantly yet (it connects just 11 cities), has stressed lower fares to garner maximum load factors.

"GoAir's fares are around 30 per cent lower than most airlines. For inst1ance, on a clogged sector like Mumbai-Delhi, a Kingfisher ticket costs Rs 2,000 as basic fare and a GoAir ticket Rs 500," said a1n executive of the travel portal yatra.com.

The carrier's gain in market share was pushed by an 85 per cent average load factor.

Although low fares do not increase yields, they attract a lot of traffic, especially from small and medium businessmen.

"Air travel by small and medium-scale businessmen has increased tremendously due to the affordable fares we offer," said Jeh Wadia, managing director, Go Air.

The carrier has expanded in a major way to non-metros like Kochi and Ahmedabad and plans to fly to more such towns.