you are here: HomeNewsBusiness

GoAir said it will become an Ultra Low-Cost Carrier. What the heck is that?

Like all other carriers, GoAir is at best a low-fare carrier and not a low-cost carrier since every other trick in the book to keep costs low are absent in India.

March 26, 2021 / 05:05 PM IST
The logo of GoAir airline is pictured on an A320neo aircraft at the builder's headquarters of Airbus in Colomiers near Toulouse, France, November 15, 2019 (Reuters)

The logo of GoAir airline is pictured on an A320neo aircraft at the builder's headquarters of Airbus in Colomiers near Toulouse, France, November 15, 2019 (Reuters)

Early this week, Go Air, the Wadia group-backed and the Mumbai-headquartered airlines, said that its Managing Director Jeh Wadia would step down. The airline elevated Ben Baldanza as its Vice-Chairman. More often than not the airline has been in the news for unceremonious exits of CEOs as news of its IPO gathers pace for probably the “n”th time. Incidentally, the company in its search for a new CEO landed up handing over the job to Kaushik Khona, who had led the airline in its last turnaround phase, a decade ago!

While many had written off the airline years ago, the airline has survived each and every crisis, so far. And while the airline has remained around the 10 percent market share mark, rival IndiGo that started later than GoAir is over five times its fleet and has over half the market share in the country. The airline may have often been accused of remaining small, but is it its nimble size that has helped the airline stay afloat during turbulent times? With the impact of slowdown, lockdown or fuel hike being the lowest in absolute terms, what can the group do to ensure that the entity stays afloat?

Baldanza is not new to the airline, its management or the country. He has been around as an adviser since 2018 and has handled various responsibilities. His tenure with the group already exceeds that of many CEOs the company has had.

However, the interesting part of the press statement from the company has been that the airline plans to move towards being an Ultra Low Cost Carrier (ULCC). Baldanza took Spirit public and transitioned it to ULCC as its CEO.

LCC to ULCC

Close

Air Deccan began the Low Cost Carrier (LCC) revolution in India. 18 years down the line, over 80 percent of the market share is with LCCs in India, 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.

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.

Cut to ULCC. 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.

Where does GoAir stand?

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. 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.

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.

Like all other carriers, GoAir is at best a low-fare carrier and not a low-cost carrier since every other trick in the book to keep costs low are absent in India. No city has secondary airports to land there and save costs and the options which LCCs provide are provided by a premium full service carrier like Vistara as well under its Economy lite scheme.

GoAir has also been using space in the aircraft for advertising. To move to ULCC what else can the airline do needs to be seen and the real challenge lies elsewhere. It doesn't take a lot of time for airlines to follow what someone is doing, so much so that Jet Airways managed to fit in personal TVs for Inflight Entertainment (IFE) when Kingfisher started. In the LCC space, to copy what GoAir is doing won’t take long.

Worldwide the LCC space is based on direct selling with many airlines not offering their inventory on third party sites or travel agents — a huge saving in distribution costs. However, India again stands out with a majority of inventory being sold by OTAs (Online Travel Agencies) and corporate or personal travel agents. All such challenges make the ULCC move something to watch with bated breath.

Was there another way?

When Jet Airways went down, it had codeshare or interline partnerships with over 20 airlines. These include those as far as Mexico or as near as Thailand. There has been a significant dip in partnerships since then. While many airlines have rushed to Vistara, those like AeroMexico which relied on Jet’s flights to Amsterdam for codeshare have been left high and dry.

It is a given that all airlines will not flock to Vistara. And could GoAir have become the alternative? The airline has enough presence at Mumbai and Delhi to cover top 15 cities in the country and had on offer a Go Business product which operated like European Business Class, whose future also remains in quandary with the plans to go ULCC.

While GoAir has opted to go the ULCC way, the only thing the airline has for now is that the airline is one of the two LCCs which are still following the single fleet type model, with the other being AirAsia India whose future may be in doubt and dependent on TATA’s bid for Air India.
Ameya Joshi runs the aviation analysis website Network Thoughts.
TAGS: #GoAir #LCC
first published: Mar 26, 2021 05:05 pm

stay updated

Get Daily News on your Browser
Sections