Subscribe to DSC Newsletter

How are low-cost airlines faring in India today? "Low-cost" airlines? Doesn't that sound like an oxymoron? Yes it is, indeed. Low cost airlines are practically non-existent nowadays. It's been five years since the launch of so-called low cost airlines but today it is literally bleeding to death. Darwinism has propelled the airlines to its next stage in evolution. Value carrier is the in-thing now.

Go-Air, which was till recently, a low-cost carrier offering fares in the range of Rs 0-99, reminiscent of Air Deccan's pricing in 2004, has now added business class, christened "Go Comfort", to its flights. This is seen as GoAir's move into the category of value carriers - a hybrid between a low cost carrier (LCC) and a full service carrier (FSC).

Air Deccan, India's first LCC, merged with Kingfisher last December into a value carrier and renamed it Kingfisher Red. GoAir has become the latest, if not the last, among all airlines in its category to shed its image of a low cost carrier. This event has increased the clamour that LCC model cannot survive in India.

The cumulative market share of LCCs has come down from 47 per cent in January 2008 to 41 per cent in September 2008. Their average passenger load factor has fallen from 65 per cent to 54 per cent. As the aviation sector grapples with a slowdown, the sales of LCCs in September 2008 over August 2008 fell 37 per cent as compared to a 13 per cent drop for FSCs according to travel companies. As an aside, three LCCs - Spicejet, IndiGo and GoAir - have lost their CEOs in the last five months.

What is the reason behind such sorry state of affairs among airlines? The answer lies in 'pricing'. Experts say that Indian LCCs have not been able to price their tickets right and at one point even brought their fares close to that of FSCs.

The viability of a pricing structure is contingent on the cost structure in terms of fuel, lease rentals, staff salaries and so on. Unfortunately both FSCs and budget carriers have the same cost structure. For instance, a pilot flying an A320 would expect the same level of salary irrespective of the company that owns the aircraft. Also the space rentals at airports for either kind of carrier would be the same since the aircrafts occupy the same space and use the same facilities.

According to global standards, the average cost per passenger for LCCs should be $35 lower than that of FSCs. But this is contingent on better utilization of aircraft through faster turnarounds ie., the time taken between landing and the next flight. This is where technology initiatives such as Corporate Performance Management using Business Intelligence (BI) tools can come very handy.

These BI tools can serve to provide self-service querying and reporting facilities, dashboards and the like to analyze the performance of the airlines in depth and enhance the overall decision making process in the organization. Not only can the BI tools provide descriptive analytics (i.e., analytics comparing the past to the present) but also predictive analytics (i.e.,analytics predicting the future).

BI can help capture information such as:

- Average landings per day in each serviced location

- Average flight duration between any two destinations

- Average seat capacity utilization by passengers during different times of the day

- Average delay in take-off or landing

- Average turnaround time of aircrafts

This information then can be used to compare against competitors data and industry benchmarks. For instance, the average turnaround of an LCC flight should be 20 minutes and that of an FSC - an hour. Reports providing comparisons against such benchmarks shall serve to highlight the current utilization of aircrafts - an example of descriptive analytics. With predictive analytics, the company can project the future utilization based on seasonality factors, nature of customer segments served currently, past trends and patterns, etc and even go to the extent of predicting in advance the viability of building airports specially for LCCs which would give scope for reduction of airport charges and in turn a reduction in prices of tickets.

These analytics can help determine the company's strategy. For instance, a flight without food might not be a good idea in India since the average flying time is an hour and a half. Conceptually there is nothing wrong with the LCC model in India especially considering the low level of air penetration in the country. The right way would be to expand and keep fares low. As the passenger load factor rises, the costs can be spread over the passengers and economies of scale can be realized.

The critical question to be addressed here is 'how to increase the passenger load factor'. BI can pitch in here with certain customer analytics such as follows:

- Number of passengers travelling on official purpose

- Number of passengers travelling for personal reasons - e.g., vacation, family functions, etc

- Destinations with a higher concentration of a) official visits b) personal visits

- Frequency of travel of passengers in a given time period

- Average Traffic density in a sector/route

These customer analytics can help a company come up with viable strategies to tackle business challenges. If a firm finds that the average traffic density in a certain route is high and the average turnaround time of aircrafts is also high, then it might be worthwhile considering a separate airport for LCCs in that sector. In fact international LCCs make lot of savings on heads like airport charges. When RYAN AIR (a successful LCC in Europe) flies from London to Toulouse, it lands at an airport called Carcassone, whoch is outside Toulouse. Airports like these are designed, in terms of infrastructure and charges, for LCCs and do not entail frills. The passenger disembarks from the plane, rents a car and leaves. So these are savings on airport charges.

Due to congestion at airports, the average utilization of aircraft in India is 2 hours less than in other countries. Six per cent of an airline's savings come from better utilization itself. considering all these, the current airline scenario in India makes a perfect case for implementation of Business Intelligence.

Article - "The flight of low cost airlines" -

Views: 1843


You need to be a member of AnalyticBridge to add comments!

Join AnalyticBridge

On Data Science Central

© 2021   TechTarget, Inc.   Powered by

Badges  |  Report an Issue  |  Privacy Policy  |  Terms of Service