Spicejet CEO Neil Mills confirmed that he has been approached by several Gulf-based and Southeast Asian airlines and awaits an Indian government decision on direct foreign investment in order to take talks further.
This news, taken in context with Kingfisher interests, shows that India is in line for an aviation boom but only if direct foreign investment is granted. A boom that will put the sector back on track and thus help increase Indian economic activity. No one is under any illusions of the importance of India as it moves to become the most populous nation on Earth. The Indian market is a joke at the moment with prices far too low, this we know, but consider this – The pain being suffered at this time to get people off of trains and used to air travel is in fact paving the way for a future where Indians consider air travel as a norm. This is significant as it means the market is being prepped for the future, a future where fares will rise.
But Airline Economics understands that all Indian airlines have increased their fares on many busy routes by 10-25% over the past few days. This indicates that airlines are cashing in on the severely curtailed services of the ailing Kingfisher Airlines. The market is settling, which is good news for the likes of Jet Airways.
On the busiest Delhi-Mumbai route on which the last- minute return economy airfares averaged about Rs 9,000-10,000 in February when Kingfisher was carrying out large-scale cancellations, now range between a low of Rs 11,300 and a high of Rs 22,800. Similarly, on the Delhi-Bangalore sector, economy return fares rose from an average of Rs 12,000-15,500 to Rs 17,000- 23,000. The Delhi-Kolkata route saw a jump from Rs 10,000- 12,000 to between Rs 15,000 and Rs 18,000, while that for Delhi-Srinagar ranged from Rs 10,500 to as high as Rs 34,194.
It is not yet clear that these fare increases will help profits as they for the most part do not cover the increase in service tax in this year's budget which has made overheads like advertising, utilities and rents of aviation companies costlier and that is before fuel is considered.
The prize for investors is access to Indian airports which at the moment is limited by the fact that most nations have used up their allotted traffic rights to India. However, part-ownership of an Indian airline could allow them to take advantage of spare frequencies unused by India. India's cabinet is expected to make a decision on Foreign Direct Investment (FDI) rules this week but of course we were told the same thing last week.
Neil Mills declined to name any of the airlines involved in talks but of course Emirates said earlier this week it is studying new opportunities to buy foreign carriers if they fit the Gulf emirate's strategy, adding that it is interested in an investment in India if carried out at the right price, interestingly though at this point Kingfisher seems to have more going for it as an investment opportunity than Spicejet.