Low fare carrier SpiceJet is expected to announce commencement of their regional operations using their recently ordered 15 Bombardier Q400 turb0-prop aircraft which are expected to start arriving from end June onwards.
It appears SpiceJet will commence their regional operations from Hyderabad using their first four or five aircraft and then commence another hub from Bangalore in late 2011 or early 2012 using the next four or five aircraft.
It is a good move that SpiceJet is commencing regional operations in the south. Most northern tier two cities are well served thanks to geographic and political closeness to the nations capital which ensure very good train and air links. Also SpiceJet is heavily north centric and has been steadily loosing eye-balls and brand recall in the south to fellow low cost carrier IndiGo, as the latter aggressively expanded its fleet and operations in the south.
Due to stake-holder fragmentation, prior to being acquired by media baron Kalanithi Maran, SpiceJet was unable to find internal cooperation for much needed fleet expansion. The acquisition provided much needed ownership consolidation and SpiceJet has since ordered 30 Boeing 737-800s whose deliveries will commence in 2014. The rapid delivery of the Bombardier Q400’s is a smart move allowing SpiceJet to rapidly expand its footprint in the south, and bring passengers from tier two cities to its operational presence at the tier one cities.
However, Bangalore is a far more attractive hub when compared to Hyderabad. Bangalore is the largest city for domestic air traffic in the south, almost twice the size of Hyderabad, and well ahead of Chennai. Unlike Chennai and Hyderabad which are head-quarters to the Southern and South-Central Railways respectively, Bangalore is very poorly serviced by rail which only adds to the air traffic potential.
Thanks to the legacy thinking of the government of India which favoured the four metro concept, Air India under-serves Bangalore, and the financial difficulties of Kingfisher forced it to focus on Mumbai and Delhi. Jet Airways is Mumbai centric and has traditionally favoured Chennai over Bangalore, while IndiGo has an all jet Airbus A320 fleet which cannot operate to many of the small airports of tier two cities targeted by SpiceJet’s regional service.
From Bangalore, destinations like Hubli, Mangalore, Kochi, Trivandrum, Calicut and Mysore are crying out for a low cost carrier, while Belgaum, Vishakapatanam and Vidyanagar (serving the world heritage site of Hampi) have no flights at all.
Just as an example, Hubli has only one flight a day, and Kingfisher rakes it in on this route with 100% loads at fares over Rs. 6,000 one-way (compare to Mumbai which is going Rs. 3,800). Travellers between Mangalore and Bangalore routinely complain of being at the mercy of incumbent operators due to a lack of adequate capacity.
Bangalore also has one more advantage over Hyderabad the airline should consider. India is already known as a price sensitive market, and in tier two cities the price sensitivity only increases. Bangalore airport charges passengers a user development fee of Rs. 265 compared to Rs. 475 at Hyderabad.
For sub-80 seat aircraft as per government policy of promoting regional aircraft, the landing charges are virtually nil at both airports, and aviation fuel for these smaller aircraft is a declared good and therefore subject to the same 4% local sales tax (compared for 28% normally) and will therefore cost the same at both airports.
However, apparently, GMR Group, the owner-operator of Hyderabad airport, has agreed to partially rebate the UDF of Spicejet’s regional operations at Hyderabad for a brief initial period, may be six months. (I wonder how that would stand up to a legal challenge in front of the AERA).
GMR also operates Delhi airport, the home base of SpiceJet, and the airline may want to curry favour with GMR at Delhi, by making Hyderabad the “launch” airport for its regional operations.
Do you feel SpiceJet is further loosing market opportunity by delaying a regional hub at Bangalore? Post a comment.