While low cost format for airlines took shape in the country with the establishment of Air Deccan in the country back in 2003, full service carriers like Jet Airways and Kingfisher Airlines are now realising the potential of the format and hightening focus on the same lately.

While the no-frills way of flying was championed by Captain Gopinath of Air Deccan, Jet Airways is increasingly realising the virtue of the format and has recently launched ‘Konnect’, a budget service by the airline which will offer upto 15 per cent - lower fares than itself.

This is when the Naresh Goyal-promoted carrier already has the no-frill entity JetLite, erstwhile Sahara Airlines which was acquired by Jet back in 2007.

The Konnect service will basically fly to destinations that are currently not covered by JetLite.

Increasing focus on low-cost airlines

“We are beginning operations of Jet Airways Konnect, our new all-economy, no-frills service. The airfare will be 10-15 per cent lower on the new service compared to fares charged for our economy class,” Jet had said while introducing Konnect.
There will be 58 flights on a daily basis across 19 routes. The service will connect Mumbai with Bhopal, Udaipur and Ahmedabad, Chennai with Coimbatore, Madurai and Kochi and Bangalore with Pune and Mangalore.

“Jet Airways Konnect has been designed to meet the needs of the low-fare segments. It would complement Jet Airways’ full service product by providing a service that is better suited to cater to the market that desires an economically priced low-fare product,” the airline said.

Jet Airways expects that its Konnect service would achieve around 70 per cent seat-factor with 30-35 per cent increase in the number of passengers.

It said that while there was a lot common in the operational models of the two – JetLite and Jet Airways Konnect – there would be no overlapping as far as their routes were concerned.

Jet admitted that the on-going recession had forced the airline to replace its full-service carrier with an all economy-class service on certain routes. It also said that the new service would not incur additional cost.

Even Vijay Mallya-led Kingfisher Airlines will increase its fleet deployment for low-cost Kingfisher Red service. The airline has reportedly decided to deploy almost all single aisle planes towards the budget service.

The ongoing economic slowdown has forced lot of business professionals opting for budget flying or even trains. Many people who used to travel full service flights are now opting for LCCs.

45-50 per cent market share

Given that LCCs today command about 45-50 percent of the overall market share, the budget model seems to be here to stay. For the month of March 2009, IndiGo and SpiceJet, both no-frills carriers, accounted for 13.4 per cent and 12 per cent market share. Even JetLite cornered a share of 7.3 per cent while Wadia’s promoted GoAir had a share of 3 per cent.

However, according to aviation consultancy Center for Asia Pacific Aviation, the Indian market is poised for more consolidation which is most likely to happen in the LCC segment.

The consolidation will happen in the budget segment “especially as the full service carriers do not have the balance sheets to engage in further acquisition,” says a recent CAPA report.

Indian aviation industry is poised for another round of consolidation as early as the first half of the current fiscal with low-cost carriers like IndiGo and SpiceJet requiring significant capital and funds inflow, the report said.

“The next round of consolidation may be strategic in nature. For example, SpiceJet has indicated that it would be interested in participating in such a development,” the CAPA said in its report titled “Indian Airlines Prepares for Consolidation Round Two.”

The paper notes that the earlier round of consolidation in 2007 with the Kingfisher-Air Deccan merger, Air India and Indian Airlines merger and Jet-Sahara acquisition took place against the background of an industry that was beginning to exhibit the first signs of distress.