India is gaining a global reputation as a talented producer of a range of low-cost goods from automobiles to machine tools. This is not just a case of leveraging a cost arbitrage on labour but also a product of value engineering and research which is, in turn, the result of an inherently resource-saving mindset.
The question is why this same outlook and expertise cannot be extended to the services sector — that is, services outside of information technology where the business is still largely driven by value arbitrage. The emergence of India’s low-cost or budget airlines suggests that it is eminently possible to do so.
Much is being made of the fact that the budget carriers are making the profits this year in contrast to their more lavish full-service counterparts because of the downturn. Collectively, they now have a 55 per cent market share, up from 45 per cent last year.
It could be argued that these gains were only to be expected in the downturn when cost-cutting is the mantra in vogue. But the bigger point to note is their overall service standards.
Ever since Jet Airways raised the bar on airline service standards when it started in 1993, air travellers in India have overcome the trauma of state-run Indian Airlines’ appalling service standards during its monopoly heyday. Most passengers now take efficient and friendly service for granted on full-service carriers. The fact that they also exist on budget carriers, however, is worth noting.
To truly appreciate the difference, trips on Egypt’s national airline EgyptAir or a flight on a Chinese domestic carrier are strongly recommended. Both are budget carriers that, like their counterparts around the world, squeeze in as many passengers as feasible to maximise profits per flight. But the cabin crew on Indian budget carriers mostly alleviate the discomfort with an unfailing amiability, skill and efficiency. Indeed, apart from the slightly cramped seating and the fact that passengers have to pay for food and beverages, the experience is little different from a full-service carrier where fares are almost double.
Contrast this with EgyptAir, an airline that caters to foreign tourists, Egypt’s single biggest income earner. A round-trip to Abu Simbel, a tourist hotspot in northern Egypt, brought back memories of the bad old Indian Airlines-only days with a vengeance. Despite the acquisition of new Brazilian Embraer jets by the airline, the aircraft were poorly maintained, the furnishings frayed and the cabin staff unhelpful and unfriendly. Orders to buckle up were issued by a stewardess whose tone would have done credit to a boot camp guard. Water packs were dispensed grudgingly on request. There was no food — not even for sale — on an almost two-hour flight.
On China Eastern, a two-hour flight to Shanghai was similarly memorable for its inhospitable staff and the poor interior maintenance. Snacks of sorts were available but they were of such poor standard that most passengers left their packs half-eaten (this in a country that boasts such delicious cuisine).
To be sure, budget carriers, whether in the US, Europe or Asia, rarely stand out for their service, the broad argument being that the rock-bottom fare structures preclude such niceties. This is often cited as a basic truth about any kind of low-cost service. Most Indian budget carriers can disprove that rule.
Indeed, decent service standards on budget carriers have been replicated in other Indian budget services delivered by the private sector. Chains of budget hotels that are emerging in India often provide a quality of service that is comparable to — and often better than — what’s on offer in our hugely overpriced five- and seven-star chains (a model that Gujarati-owned motel chains have successfully replicated in the US). Likewise for the famous Udupi chain of restaurants offering south Indian cuisine and scores of local low-cost retail chains that dispense with the trappings of large stores in favour of efficiency.
As the rising fortunes of the budget airlines have shown, Indian businesses need to take the low-cost service models more seriously because the current downturn is unlikely to change consumer outlook for a long time to come. In that situation, the “commodity” nature of such services — competing solely on cost — will lose its relevance as consumers start looking for key differentiators in quality too.
