Stock market investor Rakesh Jhunjhunwala has said he will launch an airline that will have up to 70 planes within four years. The billionaire is considering investing $35 million and would own 40 percent of the airline, he told Bloomberg Television on July 28.
He will also rope in Aditya Ghosh, the former president of India’ largest airline IndiGo as a co-founder, The Economic Times reported.
Moreover the airline has been christened as Akasa and will operate as an ultra low-cost carrier (ULCC). IndiGo and also SpiceJet operate as low-cost carriers (LCCs) in india.
But what is an ULCC? If you are wondering what that is, here is a primer.
The beginnings in India
Air Deccan began the Low Cost Carrier (LCC) revolution in India. Eighteen years down the line, over 80 percent of the market share is with LCCs in India, also probably the highest anywhere in the world. This comes on the back of two major failures — Kingfisher Airlines and Jet Airways and lack of growth from Air India.
What are ULCC?
Airlines that follow an ultra-low-cost model will cut back on all expendable costs. A ULCC will stuff as many seats as possible onto planes, fly more hours a day and keep seat prices separate from all related goods and services.
Every space is worth selling, if not for passengers then for advertising. Advertising on the luggage bins, foldable seat back trays, paper cups, food packaging and just about everything. And a separate charge for every unbundled service, such as each bag and each seat.
What is an LCC model?
A typical LCC model involves a single type of fleet, limited personnel costs, focus on ancillary expenditure, point to point network, single class of service, direct channel bookings amongst others. This also includes flying to secondary airports and avoiding the high-cost primary airports.
What about the Indian market?
Indian aviation sector has always been different.
The entire 80 percent market share of LCCs comes by operating to the same airports where full service carriers (FSCs) operate. Even when Bengaluru and Hyderabad got their second airport, the first ones were closed and regular demand to open up has not yielded results due to contractual obligations.
When AirAsia India was launching its operations in India, it hit a bottleneck even before starting as the regulator mandated that the airline cannot sell fares without baggage. Also over the years, the “opt-in” methodology has been adapted with the latest Air Transport Circular of 2021 making it clear on what can be charged extra.
What about the global market?
Several American and European carriers have done away with the frills of flying— airport lounges, plush seats, drinks on board and so on. The pioneer of these low-cost airlines is American carriers.
Southwest Airlines. The ULCC model was pioneered in Europe by Irish carrier Ryanair and in the US by Spirit.
Spirit is often credited with mastering this model, which has helped it make consistent profits in a difficult industry. It has also essentially recast budget air travel by charging for everything from boarding passes to drinking water.
Moreover Full-service airlines typically chase big-spending business travellers, the folks who love spending time in airport lounges or lunging in plush seats in the front of an airline. ULCCs such as Ryanair and Spirit target passengers who look to reach destinations as cheaply as possible.
When you look at the various options in the market and it is amply clear that GoAir and most other LCCs are already doing what an LCC or ULCC can
- focusing on ancillary revenue for seats
- food and beverages (except water)
- limited baggage allowances which mean passengers have to buy additional baggage allowance in advance or pay at the airport.
The ULCC model is also not for everyone. Moreover as one would expect, the ULCC space can become cutthroat like the rest of aviation. It does not take much for an LCC to become a ULCC.
Indian airlines have also long focussed on luring travellers from a rival and boosting market share even at the cost of losing money on routes.
Information Source: Economic Times and moneycontrol.
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