Airlines, Aircraft Makers Get Going in India

The country's aviation market has come to life.
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Airlines and aircraft makers have found nirvana in India, where the demand for air travel is high and the supply is low.

Bruce Ashby, a 21-year industry veteran who pulled up stakes in 2005, headed to India and built low-fare carrier IndiGo from scratch, explains it thusly: "People want to fly, the economy is booming, salaries are going up, and alternative forms of transportation are relatively weak."

The manufacturers have noticed, and India is now a favorite market for Airbus and

Boeing

(BA) - Get Report

. In its most recent global market forecast, Airbus says India needs 935 aircraft, worth $110.9 billion, by 2025, more demand than in all but four countries.

Airbus further projects India's demand through 2015 will grow by 16.4% domestically and by 6.8% internationally. "Today's high traffic growth is really the result of large pent-up demand created by regulatory and investment constraints prior to 2003, when the industry was deregulated," Airbus says.

In its latest market forecast, Boeing includes charts comparing airplane and train travel. A train trip between New Delhi and Hyderabad takes 26 hours, while a flight takes two hours -- yet both cost about $45.

For Ashby, 46, it's the right place. He left

US Airways

(LCC)

just before the close of the merger with America West. A mega-long distance commuter, Ashby flies home monthly to visit family members in northern Virginia.

In his final days at US Airways, Ashby was executive vice president of marketing, president of US Airways Express, and lead negotiator in both pilot contract talks and merger talks with America West. Before joining US Airways in 1996, he spent six years as an executive at

United

(UAUA)

.

At both airlines, Ashby worked for Rakesh Gangwal, the recently departed CEO of Worldspan and one of two principal IndiGo investors. The other is Indian travel conglomerate InterGlobe Enterprises.

New Delhi-based IndiGo is India's fastest-growing airline. It placed a $6 billion order for 100 Airbus narrow-body jets in 2005 and began flying in August 2006. It now flies a dozen aircraft, serves 15 cities with 88 daily departures, about half from New Delhi, and has about 8% of the domestic market. The airline expects to make money as soon as 2008.

"It's been a great experience, building something from a computer screen into a real company," Ashby says. "My prior experience was working at large, troubled, full-service carriers. In India, there is none of that. No history, no unions, nothing to fix or patch up or explain or apologize for.

"That prior experience gave me a long list of things not to do," he adds. "We're not going to have first class or put TVs on airplanes, not going to get five airplane types, not going to acquire or be acquired, and not going to suddenly start to fly internationally. We're just going to do one thing -- fly an intra-India carrier with affordable fares, on-time flights and a hassle-free travel experience."

After decades of sleepiness when it was dominated by three carriers offering high fares and limited service, India's aviation market has awakened. Deregulation brought heightened competition, low-fare carriers, rapid growth and plenty of dealmaking.

Today, state-owned Air India (which merged with Indian Airlines in July) and Jet Airways operate both international and domestic service, while a half dozen smaller carriers, all just a few years old, compete domestically.

Infrastructure remains problematic. Over the next three years, more than $9 billion will be invested to improve key airports, according to Boeing.

The biggest, in New Delhi and Mumbai, can accommodate only 300 to 400 daily departures. By comparison,

Delta

(DAL) - Get Report

alone has about 1,000 Atlanta departures.

The lack of infrastructure means that at times, airlines simply cannot serve various markets, and, for the moment, no airlines operate hubs. "A hub is an inefficient use of resources," Ashby says.

India presents a surprising contrast with China, said Henry Joyner, senior vice president of planning for

AMR

(AMR)

, in an interview.

"In China, the government has spent a lot of time and money on infrastructure and has pretty good world-class airports that are either in service or developing," Joyner said. "In India, they're challenged by the lack of infrastructure. They need more gates, more runways and access to airports in terms of roadways. The Indian government is very focused on trying to play catch-up on that."