Mumbai // Sanjay Aggarwal is probably the only true optimist in Indian aviation. "I'm the contrarian," he said from the Delhi offices of SpiceJet, the low-cost airline that he heads. "I think demand is beginning to turn right." But Mr Aggarwal is only four-fifths an airline chief executive. For the rest, he is accountable to a vulture fund. Last August, WL Ross, the New York-based distressed asset specialist run by Wilbur Ross, invested US$80 million (Dh293.4m) in SpiceJet. He nominated Mr Aggarwal as his point man to lead the consolidation, tasked with whipping SpiceJet into shape and then mopping up its weaker rivals. "I think there is bound to be some consolidation," Mr Aggarwal said. "There are a couple of airlines that are in deep financial trouble. My guess is you'd see maybe a couple of fewer airlines in a few years. Will they be taken over or shut down? I think it could be either." India's airline gold rush started less than five years ago with the dream of a Bangalore silk farmer. Captain GR Gopinath wanted "every Indian to fly at least once in his or her lifetime" and his Air Deccan sustained three years of deepening non-stop losses to try to make that happen. Others rushed to join him. In 2005, the London-based entrepreneur BK Modi launched SpiceJet and Mumbai's Wadia family piled in with Go Air. Vijay Mallya's Kingfisher came in the same year with a more up-market offering. The cleverly named Indigo, launched by the former head of US Airways, Rakesh Gangwal, and the Indian businessman Rahul Bhatia, made a late entry in Aug 2006. The number of people flying more than doubled from 14 million passengers in 2003 to 40 million last year. But even before passenger growth slumped 5 per cent, the airlines were losing fortunes. In the year to March, Indian domestic airlines lost almost a quarter of the estimated $9 billion the industry suffered worldwide, despite carrying only 2 per cent of global traffic. "Indians have a tremendous appetite for losing money," says Kapil Kaul, the managing director at Delhi's Centre for Asia Pacific Aviation. "In most other markets these airlines would have closed." Running an airline in India is not cheap. Fuel costs, about 40 per cent of total operating costs, are higher than in Europe. Airlines have been forced to use expatriate pilots on inflated salaries, and airport charges are higher, too. The Centre for Aviation says India's low-cost airlines added six planes a month, when there was demand for only three. It is easy to see why the industry drew the attention of Mr Ross, whose best-known coup came when he bought up bankrupt steel mills in the US rust belt, consolidated them into a business with enough price control to bargain with Detroit's car giants, and then sold out to the Indian steel magnate Lakshmi Mittal. The obvious partners for SpiceJet are Indigo and Go Air, the other two low-cost carriers. Nusli Wadia, the chairman of Wadia Group, whose son Jehangir is managing director of Go, is clearly looking for the right deal. "I don't think it was the right business to have got into. But we're in it," he said in an interview earlier this month. "The airline business is a very, very tough one. The capacity growth in India has been far too great, and so today planes are not filled. And where they are reasonably full, prices are ridiculous: I mean they are unviable." But what may be vexing Mr Aggarwal and Ranjeet Nabha, WL Ross's head of India operations, is that, since Air Deccan sold out to Kingfisher in 2007 the process of consolidation has gone backwards. Competition is growing as India's full-service airlines launch their own low-cost outfits. Part of the rescue plan Air India outlined yesterday is thought to involve growing its domestic low-cost operations. Kingfisher Red, the new name for Air Deccan, has moved slightly upmarket (passengers get snacks), but it is still a low-cost operator. When Jet Airways this year found itself flying with 45 per cent of its seats empty, it decided to go low-cost, hiving off half of its domestic fleet into a new airline, and replacing all the business-class seats with economy seats. The new operation, Jet Konnect, launched in May and already flies more domestic flights than the parent Jet Airlines. So why is Mr Aggarwal optimistic? There are two causes. Partly it is because domestic air traffic was up 5 per cent last month, but mainly because airlines have begun to slash fares again, putting pressure on everybody and making consolidation more likely. Mr Kaul sees another difficult patch ahead. "This year, if most full-service carriers turn into low-cost airlines, we will continue to see passenger numbers bouncing back, but it will also mean you'll have more red ink. Normally, low-cost do not compete with each other, they compete with the big airlines. We're heading into very unknown territory and we don't know how it's going to turn out." email@example.com
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