As the air gets turbulent

These may be the three most dynamic sectors in the Indian economy as they seem to flood the news every day- retail and ecommerce websites, mobile telephony and airlines. Each day there is either the rise or fall of a new marketing tactic and sales promotions to drive revenues. I already tried to establish a symbiotic relation all the three are having where mobiles and telephone networks are driving people to the internet, online retail is building the aspiration for products and airlines are making overnight deliveries and satisfaction a possibility. In the last few weeks, the skies have turned murky and the airline industry is likely to face turbulent air. 

Spice Jet was showing signs of running on low cash reserves for a long time. In fact when they launched some astonishing discounts for flight bookings beyond six months from the day of flying; I sensed they were trying to stay afloat by selling a future beyond their reach. And so it happened one day that almost 1800 flights of December were grounded and fuel was now on cash and carry. As for the passengers, well you invested too far ahead on promises to fly on a carrier whose daily operating loss even while flying was in excess of 3 Cr.

This won’t be the first time this is happening with Spice Jet which saw a similar fate in its earlier avatar of ModiLuft, which ironically had also ran out of funds. So from a full service carrier that started off in 1993, Spice Jet turned into a Low Cost Carrier in 2004. Ina typical LCC style, Spice Jet always had its parking slots away from the terminal gates with flights at wee houses in the morning or late night and the buy off the cart catering service. A positive which I definitely noted was the aircrafts were always clean, young by age and more often than not; on time as well.

So how does the 2^nd largest LCC and one of the longest serving airline enter the whirl of failures? In my opinion, almost every airline in India has been suffering similar losses in a mad rush to woo customers by bare minimum fares and discounts which in most cases barely seem to cover fuel and airport charges. Spice Jet in its initial years was fighting Air Deccan on a price war of Rs 99 tickets (which after the taxes and surcharges used to come up to Rs 2300), but as far as buyer psychology was concerned, it scored heavy. All flights going full was a record that Spice Jet had in its initial years. The leadership was maintained until Indigo burst out on the scene and its offering of low cost and timely arrivals and departure made a big dent on the markets.

I had a sniff at the possible financial position last year when tickets at a cheap rate and more than 6 months beyond the flight date were being sold; a clear indication that cash flows were fast eroding and survival games have begun. The last reports have now indicated a possible government intervention to boost the airline off its blocks again. But lack of financial profitability has been the truth even with Jet Airways; which after the collapse of Kingfisher is rebuilding itself as a full service carrier and earn back its customers from the LCC’s. Adding to the mix is Air Asia’s entry into the LCC market, but its limited destinations at present makes its market position tough to decide. It now remains to see how the much awaited Vistara which is scheduled to fly from the next month will perform and affect the market.

A matter of debate may be, but one thing is happening for sure; the Indian skies are seeing turbulence and it might be only the financially fittest and consumer selected one’s which will survive the wind fall which is likely over the next few months.