Little elbow room for premium carriers in low-fare focused India

Wed Aug 13, 2014 5:00pm EDT
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By Siva Govindasamy and Tommy Wilkes

SINGAPORE/NEW DELHI Aug 14 (Reuters) - A decade after low-cost carriers led India's air travel boom, full-service airlines are gearing up for a battle for premium passengers that only the deep-pocketed are likely to win.

Flag carrier Air India, which has only offered premium travel, will face more competition from second-largest airline Jet Airways, which on Monday said it would ditch its budget unit and focus on the full-service market amid mounting losses.

The carriers are also bracing for Vistara, a venture between Singapore Airlines Ltd and conglomerate Tata Sons Ltd which will start flying in October.

The competition in the full-service sector is heating up with no guarantees there will be enough passengers willing to pay higher prices to sustain three carriers in a market where low-fares dominate and where airlines struggle to make a profit.

"There will be a bloodbath. The competition is only going to become more intense," said Amber Dubey, head of Aerospace and Defense at consultancy KPMG.

A large, and increasingly affluent, population make India one of the world's most attractive air travel markets. Passenger numbers have risen 13 percent a year since 2003, a rate analysts say outpaces most other markets.

But intense competition and higher operating costs mean Indian airlines lost a combined $1.77 billion last year and are projected to lose up to $1.4 billion this year, according to data from industry consultancy Centre for Aviation (CAPA).

That compares with the $18 billion profit airlines globally are expected to make this year, up from last year's $10.3 billion, International Air Transport Association data shows.   Continued...