Jet Set Go !!

jet.jpgStarting 1 January 2008, Jet Airways (India) Ltd, nation’s biggest domestic carrier will be allowed to start operations to Kuwait, Oman, Qatar and Bahrain, becoming the first private player to receive government’s clearance. The civil aviation ministry had granted these traffic rights to the private player, in response to its appeal to operate flights in the Gulf countries. While the airline’s request to fly to the most lucrative destinations has been acknowledged, Abu Dhabi and Dubai is still under consideration.

Until now, the state carrier, Air India was the only airline that had monopoly over these routes. Catering to about 4 million passengers, these routes have always been of prime importance to the airline. 50% of the cash flow of Air India comes from the Indo-Gulf market.

The immediate effect of the decision was seen in the value of Jet Airways’ shares that rose as much as 2.7% on the Bombay Stock Exchange. Apparently, the decision is seen in positive light by the market as well.

The move seems feasible considering the fact that Indian carriers have not been able to utilize the seat capacity available to them. Out of the 85,481 seats per week entitled to them, only 49,348 seats (58% of the total) per week are used. This makes the decision to allow more operators to fly on the route look sensible. Reportedly, other national carriers like Kingfisher, SpiceJet and Indigo are also eyeing the gulf sector.

Apart from the regular flights, Jet is also planning to use its low cost carrier Jetlite (newly acquired Sahara) on the route. The increased competition is speculated to bring down the fare for passengers by about 10%. This will definitely mean a lot of choice for the consumers, and revenues for the airline from its international operations. Meanwhile, Air India stands to lose out on its profits as Jet will definitely command a share from them. With the entry of more private players for the route, tourism may also receive a thrust. Jet is planning to expand its business operation so that it accounts for half its revenues by March 2010.

Many are of the view that overseas routes should be open for all airlines, including start-ups as a part of complete liberalization of the sector. The government still has reservation regarding the move and hence has imposed the five-year domestic criterion that the airlines must fulfill before launching international operations.

India is currently experiencing a boom in the aviation sector, with a whopping 25% per annum growth rate. Factors that have contributed to this are de-regulation and increasing number of foreign flights to India. Adding to this, the domestic market for aviation is also maturing, with more carriers investing in it, ensuring better regional connectivity.

While India may emerge as the happening spot for aviation, its poor airport infrastructure is still a major cause of concern and threatens to retard the robust growth in the sector. A lot of investment is put into buying aircrafts and developing mergers, which must be matched by investment in infrastructure too.