Tuesday, 21 May 2013

Unbundling services in civil aviation

With Kingfisher already gone bankrupt and the rest fighting it out for the small passenger base, the aviation industry is one place making survival tough for all the players.
Air Asia is all set to enter the market and this again as a nightmare for the already reeling industry. Unbundling the services in civil aviation for the domestic sector at such a crucial time has come as a boon for the operators. The operation costs have been going up and the passenger count has remained more or less stagnant in the present economic scenario.
The history of low cost carriers dates back to 1971 when Dallas based South West Airlines started its operations. In India, the trend was set by Air Deccan in 2003. From there on the price war amongst the different carriers became fierce with all the major carriers either reducing the fares or launching a second line (low cost) to withstand the competition (Eg. Jet Connect etc.).
The price war was getting stiffer and the pressure on profits was mounting. This was visible with Kingfisher’s case (though mismanagement too played a great role in its case) and many of the other operators posting losses quarter after quarter.
The present move of DGCA to unbundle the services has been very well received by the operators with major operators like Indigo, Jet Airways and even Air India incorporating the changes within two weeks of the decision. Indigo is already charging extra for window and aisle seats along with seats in the first, second, last, and second last rows. The free baggage allowance has also been reduced by Jet Airways and Air India from 20 kgs to 15 kgs in ecnomy class travel with different airlines charging different rates for the same. Also, Air India and Jet Airways are planning to charge for food and drinks on board.
The point of debate is whether the move is going to benefit the customers as much as it is going to help the operators. The infamous incidence of Ryanair charging a pound every time for usage of plane lavatory and the public outcry that followed is known to all. It is to be seen now if the operators go here the same way and make air travel expensive in general or not.  Decrease in air fare has not yet been seen from any operator after unbundling of services. Indigo has stated that passengers won’t be charged extra for window or aisle seats if a reservation is made and only these seats are available and the passenger is not preferentially selecting the particular category of seats.
How exactly things turn up for the industry is yet to been but relief to passengers is not visible in the near future.

By Siddhant Gupta (Indian Institute of Management Raipur)


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