Given that people in India are extremely value conscious, it’s no surprise that penetration of low-cost carriers (LCCs) in the domestic aviation market is arguably the highest in the world. LCCs offer a no-frills experience that target flyers willing to sacrifice comforts such as free food.
In April this year, LCCs in India led by IndiGo captured nearly 80% of the domestic aviation market, according to data from the Directorate General of Civil Aviation (DGCA). IndiGo alone commanded 50% of the market.
In the U.S., home to the world’s largest LCC, Southwest, the market penetration of LCCs is about 31%, according to an article published by Anna.aero, an aviation news and analysis website. Incidentally, Puerto Rico in the Caribbean Islands has an LCC market penetration of 58.6%, the highest in the Americas.
In Europe, Macedonia has the largest LCC penetration at 65%, followed by Slovakia (62.3%), Hungary (61.7%) and Romania (60.7%), according to another Anna.aero report.
Closer to home, in Southeast Asia, aviation consultancy firm CAPA estimates that Indonesia, Thailand and Malaysia have a domestic LCC market penetration of 60%, 56% and 53%, respectively.
Amar Abrol, former CEO of AirAsia India, in a recent interview with Fortune India, said that LLCs are all about “the volume game”. “That is why the back of the plane [economy class] has more people than the front of the plane [business class]. Simple logic.”
Just 11 years ago, full-service airlines (FSAs) in India such as Jet Airways (grounded for want of funds to run operations), Kingfisher Airlines (now defunct) and Indian (now Air India) accounted for over 50% of the domestic air travel market. Unlike LCCs, FSAs offer free food and beverages, in-flight entertainment, and other amenities.
However, Devesh Agarwal, aviation geek and editor of bangaloreaviation.com, says LCCs in India differ much from their counterparts in other parts of the world. “The definition of LCC varies in context to India. There is no pure-play LCC in the country,” says Agarwal. “In India, LCCs are actually low-fare carriers.” For instance, LCCs in India offer free check-in baggage of up to 15 kgs, carry-on luggage, and offer free water on board. As per DGCA regulations free water is a must, which is why when Iceland’s ultra low-cost carrier WOW Air launched operations to India it had to offer free water in Indian airspace. Earlier this year in March, the airline shut down after it failed to get funds to run operations.
Spirit Airlines in the U.S. allows passengers to carry only one carry-on baggage, which is either a laptop bag, or a purse. Additional carry-on baggage and checked baggage draw charges. “Southwest only sells drinks and snacks and not meals,” adds Agarwal.
Besides, Indian LCCs operate in the country’s main airports, as there aren’t any secondary airports. “If you take Europe, LCCs don’t operate from a main airport. Southwest, too, does not fly into the main airports in the U.S., only to smaller secondary airport where the cost structure is lower,” says Agarwal. “In reality, the operating environment makes it very difficult to be genuinely low cost,” says a CAPA report.
Indian LCCs and FSAs such as Air India and Vistara differ in two aspects: free on-board meals and frequent flyer programmes made available by FSAs. However, “IndiGo actually includes a meal [covered by the fare] for corporate customers”, points out Agarwal. Besides, more often than not, IndiGo’s ticket prices are higher than FSAs’—a reason why CAPA India estimates that IndiGo “could be on track to report a profit of $400 to $500 million” in FY20.
