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Competition takes to the sky

Air Deccan's cheap fares have helped expand the market and open the way for other low-cost carriers in India.
March 2004 % change Y-o-Y
Mumbai 1,132,421 (+17.1%)
New Delhi 980,395 (+20.7%)
Chennai 401,401 (+21.1%)
Bangalore 293,696 (+34.2%)
Source: Center for Asia Pacific Aviation
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Recent GDP rates

1998-99: 6.5 percent
1999-00: 6.1 percent
2000-01: 4.4 percent
2001-02: 5.8 percent
2002-03: 4.0 percent
2003-04: 8.2 percent
2004-05: 6.4 percent (F)
India's financial year ends March 31

Source: Morgan Stanley

MUMBAI, India (CNN) -- Four years ago, an air ticket for the two-hour flight between New Delhi and the commercial capital of Mumbai cost 5110 rupees (then about $150) on Indian Airlines and Jet Airways.

A third carrier, Air Sahara, offered a 20 percent discount.

With the arrival of low-cost carrier Air Deccan a year ago, that price has tumbled now to around 3200 rupees ($70).

Last month, the no-frills airline issued a fresh challenge, offering fares that go as low as 700 rupees ($15) for an early booking made via the Internet -- not much more than the cab fare from downtown Mumbai to the airport.

The incumbent carriers have responded to Air Deccan's price cuts with their own advance-purchase fares and are sprucing up their services.

It's a familiar pattern when domestic aviation markets are liberalized. Elsewhere in the Asia-Pacific region, carriers such as Virgin Blue and AirAsia have already spurred growth in their respective marketplaces.

The four main domestic Indian carriers face an even tougher battle if two more mooted low-cost airlines take to the skies later this year.

The competition among carriers has revolutionized the options for long-distance travel in India, putting airfares within reach of many more people and giving them a viable alternative to rail.

One airline has a billboard outside Mumbai's crowded long-distance rail terminal that lists the latest ticket prices and poses the question to business commuters: "And you're still traveling by rail?"

According to the Center for Asia Pacific Aviation, India's domestic tourism market is about to take off, thanks to the no-frills option now available.

The center's managing director, Peter Harbison, sees massive potential in the sector, pointing to the huge growth experienced in China's domestic air travel market after it liberalized.

He said recently that low-cost air travel offered a "remarkable possibility" to stimulate economic activity across India, with minimal risk or cost to governments.

He said the great value of aviation and tourism was its ability to general immediate benefits to local and regional service economies through and influx of new visitors.

Traffic growing

Latest figures show passenger traffic in the four biggest markets of Mumbai, Delhi, Chennai and Bangalore grew between 17 percent and 34 percent in the year to the end of March.

In remarks late last month, the center's representative in India, Kapil Kaul, said Air Deccan's low-cost pricing was about to change the Indian aviation sector, as many more people would be introduced to air travel.

That view is echoed by Divya Gupta, president of Mumbai-based media agency, The Media Edge.

"A new leisure class is emerging in India for whom domestic and international travel is now a real possibility," she told CNN.

The world view of the Indian business person is now far greater than it was a few years ago, she said, prompted in part by the explosion in media outlets over the past decade.

According to Gupta, travel between the key metro destinations of New Delhi, Mumbai, Bangalore and Chennai has increased tremendously.

"It is now quite normal to fly from Mumbai to New Delhi for a day of business meetings," she said.

Air Deccan began operations one year ago, and now offers Airbus A320 services between Bangalore, Delhi and Mumbai. It could soon find its own market niche a bit more crowded.

Indian beer baron Vijay Mallya is about to start a rival carrier, Kingfisher Airlines, and Mumbai industrialist Nusli Wadia also has his own plans for a no-frills airline called Go.

But with increased competition comes a heightened risk for those who can't measure up, be they an airline or a railway company. The battle has been joined in India for the corporate travel budgets, and so far the winner is the frequent flyer.

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