Altitude Adjustment

By BY SIMON ROBINSON/NEW DELHI

RAJIV MEHTA, OWNER OF AN INTERIOR-DESIGN company in New Delhi, has come to dread his frequent business trips in India. Typically his flight approaches its destination only to have to circle the airport because of congestion on the ground. Thanks to India's economic prosperity and the booming growth of its airline industry, more Indians are flying today than ever. But they are enjoying it less, because more than half of all domestic flights are delayed 30 min. or more. "We needed this boom because people need to travel and we need choice," Mehta says. "But in some ways [air travel] has actually become more frustrating."

If passengers are frustrated, so are airlines, which are starting to lose money despite brisk demand. The problem: the country's superannuated airports have been overwhelmed. Since the government opened India's skies to greater competition four years ago, the number of air passengers has nearly doubled, from 48.8 million in the year ending March 31, 2004, to 95 million today. Meanwhile, nine private airlines have started up in recent years. Some, like Kingfisher Airlines, are full service, but most are low-cost carriers that have wooed millions of travelers away from India's sluggish train and bus networks--and into its sluggish airports, which lack sufficient gates, baggage-handling equipment and other facilities.

Air carriers find themselves in a peculiar bind. Demand is high: the number of domestic travelers is forecast to grow at least 25% a year through 2010, according to the Sydney-based Centre for Asia Pacific Aviation (CAPA), an industry consultancy. Yet carriers such as low-cost upstarts Air Deccan, IndiGo, GoAir and SpiceJet have added so many flights--even though there's no place to land them--that profit-destroying fare wars have broken out. Air Deccan, for example, advertises a fare of just $6.60 plus taxes for a 45-min. flight from New Delhi to Jaipur. Add in higher fuel prices, and you've got a recipe for red ink. Indian airlines lost some $500 million last year, after a couple of years of robust profit growth.

The result: consolidation amid plenty. In March the government approved a long-planned merger between state-owned carriers Air India and Indian Airlines. Meanwhile, Jet Airways, the country's largest full-service carrier, is buying rival Air Sahara for $340 million and, perhaps more important, more gates at congested airports. The mergers are "an attempt by players to basically get some kind of stability into the market," says Kapil Kaul, New Delhi--based CEO for India and the Middle East at CAPA. "What we're seeing now is sanity beginning to prevail."

Further consolidation is likely. India, which has 13 airlines today, will eventually have just two or three full-service carriers and three or four budget airlines, predicts Kaul. Their health may depend on how quickly planned airport improvements are completed. A new airport is scheduled to open in Bangalore next year; work is also under way on new terminals in New Delhi and Mumbai (formerly Bombay), with completion set for 2010 and 2012, respectively. The improvements can't come soon enough for travelers like Mehta. "We've got all these new planes and flights," says Mehta. "Finally they're starting to fix the airports." *