Capt Gopinath has the urge to return to low-cost aviation
Capt Gopinath is known as the pioneer in low cost airline business in India but he did not make the low cost airline business model successful in India. It is low cost airlines such as Indigo and SpiceJet which have made the model successful. According to Gopinath, there were a number of reasons why Air Deccan failed. He first blames it on an airline cartel which is keeping the prices of air tickets at an artificially high level. Even if this was true, isn’t selling an airline ticket for Rs. 1 just absurd. Another reason he gives for Air Deccan’s failure is that Jet Airways started predatory pricing. First, I am not sure that Jet priced its ticket for Rs. 1. Second, did Gopinath expect that the competition would just sit back and let him do what he wanted. Actually, it was Air Deccan which used predatory pricing by pricing its tickets at Rs. 1. I think apart from its pricing, Air Deccan had another major problem which even he admits when he says, “The market was expanding rapidly. I was adding aircraft every month, as I wanted size, scale and reach . . .” So, what’s new? We have heard this story before. Subhiksha tried to do the same thing and landed itself in a mess. It is always the quest for size, scale and reach that has landed entreprenuers into trouble. Why? Just greed. They want to make a fast buck because the faster they increase size, scale and reach, the faster the valuation of their company goes up. They shift their focus from building a profitable business to increasing size, scale and reach. I just hope Gopinath does not do the same for his cargo business.
Now Airlines want to be in travel business
It has been reported in Economic Times that Kingfisher, SpiceJet and Indigo want to launch a travel portal in order to save on commission. Somehow, it is difficult for me to understand the obsession of airlines to save on travel agent’s commission as if that is the primary reason for the troubles of airlines. It seems that all the airlines think that they will be all become profitable just by eliminating the travel agent’s and travel portal’s commission.
Look who’s crying again?
In my recent post I had stated that the joint action of the airlines in India to increase their fares together was prima facie illegal and unfair practice under MRTP. I was happy to read that MRTP is taking immediate action to investigate the matter. Of course, Aviation Minister Praful Patel also issued a warning but we all know what value that has considering his soft corner for his freind Vijay Mallya. I am also happy to hear that Jet has decided to wear the proverbial “pants” and reversed its decision to increase prices and disaasociate itself from the illegal act.
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