A model of low-cost airlines and no-frills airports will drive down costs, lift volumes and improve connectivity. The advent of low-cost carriers (LCCs) has led to a rapid growth in the aviation market in India. Today, LCCs have captured a majority share of the market. Globally, LCC growth is often associated with a boom in tourism, growth in air traffic and increased frequencies to smaller cities. And it has been led by new entrants like Ryan Air, South West Airlines and Air Asia, which have also shown healthy bottomlines, while the traditional airlines have floundered. This is mainly because globally, LCCs have a totally different model – right from choice of routes, ticketing, check-in, passenger service, baggage rules, labour engagement to aircraft configuration. Unfortunately in India, our LCCs have only a slightly better cost structure (primarily aircraft configuration, salaries), but they mirror full service carriers (FSC) on all other parameters. No wonder, the LCCs in India are struggling to survive and are essentially “lower priced carriers”. One key parameter where LCCs differ globally from FSCs is the choice of airport. Flying out of low cost airports enables airlines operate more efficiently and unbundle services, thus resulting in lower airport-related costs (up to 13 per cent).
LOW COST EXPERIENCE
Low cost airports are characterised by the absence of grandiose buildings, less space per person compared to international terminals, and significantly lower investment. The Airports Authority of India (AAI), as part of its suggestions to the Ministry, has included doing away with luggage scanning X-ray machines and conveyor belts for the low cost airports. Whereas the Kuala Lumpur International Airport (KLIA) Main Terminal Building (MTB) was built for a 25-million passenger capacity at a cost of $3.5 billion, the KLIA Low Cost Carrier Terminal (LCCT) is a 10-million passenger terminal costing only $30 million. Unlike the MTB, the LCCT does not have any escalators, complex baggage handling systems or aero-bridges. Consequently, passenger fees at KLIA-LCCT are 86 per cent lower than at the KLIA-Main Terminal building. The Illico terminal in Bordeaux, is a 4000 sq m wood frame terminal constructed on a minimalistic budget of $6.7 million in 2010. Mirroring the difference between low cost and legacy airlines, low cost airports operate on the policy of minimal frills and operational efficiency. The benefit of having these low cost terminals is three-fold.
Boost to tourism
First, LCCs prefer low cost airports as these are relatively uncongested and free from ground and air traffic control delays. Lack of congestion and faster turnarounds enables LCCs to increase their productivity and lower their operational costs. Second, it would increase air connectivity to tier-II and tier-III cities, making these cities directly accessible without having to pass through major hubs like Delhi, Mumbai and Bangalore. With significantly lower investments, both passenger and airline fees would be correspondingly lower. This can really spur the growth of international short haul traffic from India. Currently, a passenger at Delhi airport pays Rs 600 as (airport development fee) ADF and Rs 1,100 as UDF (user development fee) for international flights, whereas at Tiruchirappalli (Trichy) airport, the same passenger is charged only Rs 360 as UDF. Air Asia initially operated to Delhi, Mumbai, Kolkata, Chennai, and Trichy but later withdrew from Delhi and Mumbai airports, owing to high airport charges, even as it introduced its third daily flight from Trichy, becoming the largest airline there. Consequently, Trichy airport today has 45 per cent as many international passengers as Kolkata! Its international passenger traffic is over eight times its domestic passenger traffic. LCCs lead to a spike in tourist traffic. A recent study of Malaysia-Thailand air transport liberalisation found that in 2005, 28 per cent of the traffic was directly attributable to LCC traffic growth resulting in 4,300 new jobs and $114 million GDP growth. Tourist traffic to Kuala Lumpur from Singapore by air increased 24.3 per cent from 2007 to 2010 due to the entry of LCCs. Excluding Singapore, Malaysia received 11.3 million international tourists in 2011, which represents almost 40 per cent of Malaysia’s population.
This is in stark contrast to India, which only recorded 6.3 million international tourists. Malaysia’s experience shows that India’s tourist traffic can jump manifold with the support of short-haul international LCCs like AirAsia.
Often, LCCs strike a mutually beneficial deal with the local airport authorities, whereby the airline creates jobs and commits to a minimum number of passengers, promoting tourism in the region. In return, the local authorities organise the airport on advantageous terms for LCCs or structure financial incentives. Ryanair in Europe and Southwest in US thrive on such low cost airports/secondary airports for their operations. There have also been cases where carriers have abandoned a particular airport, in order to get better deals from airport operators that support their cost structures. Ryanair has been at the forefront of such activities, abandoning or threatening to abandon many airports such as Manchester, Graz, Girona-Costa Brava, Reus and others in recent years, to protest against the high airport costs and other regulations. With the development of more low cost airports and entry of new LCCs in India, the dynamics of carrier-operator relationship would change, eventually benefiting the consumer. Finally, low cost airports serve the important function of acting as secondary airports in cities where a major airport already exists. These airports are supposed to complement the major airport in terms of capacity and also act as a hub for LCCs. London is the perfect example of a city with successful secondary airports – Stansted and Luton. In India, the first secondary airport that is coming up is the Navi Mumbai airport and it has the opportunity to be a low cost hub. However, news indicates that instead it will be a very expensive proposition ($ 2.4 billion), defeating the very purpose it is intended to serve. The need of the hour is to plan for the introduction of no-frills terminals or secondary low cost airports where the primary airport is saturated. This will lower airport charges for airlines, thus driving ticket prices down and incentivising air passenger growth. The concept of low cost airports/terminals is quite new in India, where the focus has always been on building huge state of the art airports like we have in Delhi and Mumbai. For a developing country like India, we need to supplement the key world-class international hubs like Delhi and Mumbai with a good network of low cost airports to provide direct point to point connectivity throughout the country. Realising the gravity of the situation, the Ministry of Civil Aviation recently proposed setting up of 100 low cost airports over the next two years. The government needs to ensure quick implementation of this idea, which would help boost tourism, increase economic development as well as give a boost to the fortunes of LCCs.