Anurag Jain's Blog on Bangalore Events, Travel, IIM Bangalore, IIM, IIMB, Management

Wednesday, February 02, 2005

Posted 5:07 PM by Anurag

Will A380 put Rajdhani out of business?

There's been a lot of talk on how the new big-daddy jumbo-jet A380 will impact Rajdhanis, and in general, upper-class train travel in India. Here's my take on the issue.

Full service airlines world-wide are struggling to remain, or jump into that elusive P&L color: black. The socio-economic and political world scenario, esp. post-911, has given low-cost carriers (LCCs) an upper hand. With this backdrop of the aviation industry, the A380 comes just at the right time. Today, the industry needs to attract volumes by offering lower prices in order to make more absolute profits. In that scheme of things, A380 squeezes in quite snugly.

In India, one of the target segments that new airlines are looking at is upper class train travelers. Let’s look at the competition to A380 in numbers. Total passengers carried by Rajdhani Trains in 2002 was 2.7mn and total earnings were 245 crore Rs. Hence the average revenue would be 907.5 Rs [1922.90 Rs (AC 1st), 961.50 Rs (AC Sleeper), 610.3 Rs (AC 3-Tier)]. These average revenues, esp. AC1st class, are well met by low-cost carriers even today. Further, Average Earning Per Passenger Kilometer for Indian Railways for 2002-03: 2.43 Rs (AC 1st), 1.11 Rs (AC Sleeper), 0.78 Rs (AC 3-Tier). The same figures for a LCC, on a small plane, short-haul route could be in the range of 8-10 Rs. The same figure drops to Rs 4-6 for a big 180-seater plane, long-haul route. With quadrupling of the sector capacity with A380 (LCCs will use single economy class 800 seats configuration), the pricing gap between Rajdhanis and flying can be closed. Ergo, it is evident that by bringing down the fare-levels, A380 will certainly cause a shift from upper class train-traffic.

Having said so, however, a few riders are in order. First: Only metro-airports in India are gearing up for accommodating A380 in next few years. So, Rajdhani traffic on non-metro cities will not be affected. Secondly, the travel market itself is growing rapidly. There will, therefore, be room for both competing modes of travel because of the increasing pie size. As an illustration, last year domestic aviation travel grew at a scorching pace of 24%. Yet, the Rajdhanis are not exactly going empty!

In the end, even though A380 and LCCs are a match made in heaven (read Toulouse!), and even though carriers such as Air Deccan have expressed interest in bringing A380 to India in due course to time, I do not expect an either/or situation between A380 and upper-class train travel. Even as A380 will enable more common people to fly, both modes will continue to co-exist peacefully for foreseeable future.

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