New Delhi - Last April, Bhushan Lal Behal spotted an advert for cheap tickets on Air Deccan, India's first low-fare carrier. Behal, who'd never flown, snagged two seats to Chennai from New Delhi for 721 rupees (R99) each so he and his wife could visit Tirupati, the site of a 600-year-old shrine near Chennai.
"I hope more such airlines start so that ordinary people have a chance to fly," says Behal, a personal assistant at Bharat Heavy Electricals. "Until now, it has been a rich man's privilege."
At least a dozen new airlines are lining up to accommodate the country's 1.1 billion people, buoyed by India's 6.9 percent growth in the year to March 2005. Indian firms stole the spotlight at the Paris Air Show in June by committing $13.6 billion (R83.3 billion) for 150 new planes, more than any other nation.
US-based consulting firm McKinsey predicts that by 2010 there will be 65 million middle class Indian households, consisting of 351 million people, or more than the current populations of the US and Canada combined.
"Economic growth is so strong that domestic demand will pick up, not just for business but for personal travel," says Krishan Sehgal, a partner at Singapore-based AMP Capital Investors, which owns stock in Jet Airways (India), the country's biggest domestic airline.
The boom in air travel is sparking initial public offerings (IPOs), soaring stock prices and predictions of a shakeout. The aviation frenzy provides more signs that the world's second most populous country is lurching towards modernisation, as it has done with computers, software and telecommunications.
"Investors are waking up to the growth in India's aviation industry," says KK Mital of Escorts Asset Management in New Delhi.
Both government-owned airlines - Air India and Indian Airlines - plan IPOs by March 31 even as airports designed in the 1950s struggle to handle the new crush of passengers and flights.
"For every business in India today, infrastructure is the biggest issue," says AS Thiyaga Rajan, the managing director at Aquarius Investment Advisors in Singapore, an investor in SpiceJet. Investors are placing their bets amid forecasts that many of India's carriers will merge, seek partners or shut down.
"You'll see some airlines bleeding and closing," says Kapil Kaul, the chief executive of the Indian unit of the Centre for Asia Pacific Aviation (Capa), a Sydney-based aviation consultancy.
The government prohibits overseas airlines from buying stakes in local carriers and limits foreign investors to 49 percent, creating a hustle for funding.
Last February Mumbai-based Jet Airways raised $436 million in its IPO. In May Deccan Aviation, which owns Air Deccan, raised as much as $40 million selling undisclosed stakes to local and international finance houses.
"India has a huge, growing middle class with disposable income that is short on time and likes to travel," says Bruce Ashby, who left the bankrupt US Airways Group in July to become chief executive of India's InterGlobe Aviation. InterGlobe plans to launch a budget carrier called IndiGo this year.
"There is enormous opportunity here," says Ashby. "India has 70 cities with a population of more than 1 million. We want to connect 30 of those."
People who travel India's vast distances attest to the appeal of air travel. Trains are the choice for 15 million Indians each day, but the 1 167km journey from New Delhi, the capital, to Mumbai, the largest city, takes 15 hours by train compared with two hours by air.
Numerous obstacles threaten to stall India's skyward ambitions. The average price of jet fuel is 78 percent more than the global average, according to Capa. A 10 percent duty on imported oil and sales taxes that range from 7 percent to 39 percent contribute to the cost.
Since August 2004, when Air Deccan started flying to major cities, traffic has soared. About 40.1 million domestic airline tickets were sold in the year to March 2005, compared with 25.7 million in the 2000 period. Capa projects that more than 90 million domestic and overseas tickets will be sold in India in 2010.
Dinesh Keskar, the senior vice-president in charge of Indian sales at Boeing, cautions that India may be heading for a glut like the one that has exacerbated the woes of US airlines. Three of the five carriers that have started in the past two years - GoAirlines, Air Deccan and SpiceJet - are budget airlines.
"India could be facing overcapacity, the only way you can steal traffic is to reduce your price," Keskar says. "The moment you do that, you are into this trap of not making money."
A possible takeover is already in the works. In November Kingfisher Airlines bid $400 million for rival Sahara Airlines, offering less than Ernst & Young's valuation of at least $750 million.
Sahara Airlines wants to sell a minority stake to raise money to buy planes, says Ronojoy Dutta, the president of the Sahara Group subsidiary. Kingfisher is slashing prices for seats on its fleet of eight Airbus A320s to compete with Jet Airways and Indian Airlines.
Kingfisher's founder, beer magnate Vijay Mallya, plans to challenge Jet Airways on international routes, too. He has ordered 58 jets from Airbus and 20 turboprops from Italy's Finmeccanica for a total of $6 billion. Five decades ago, India had two airlines: Indian Airlines for domestic routes and Air India for foreign travel.
Prime Minister Jawaharlal Nehru formed the airlines in 1953 by taking over private companies. Indian Airlines melded eight small airlines with 99 planes. Air India grew out of Tata Airlines, a part of the Tata Group.
The first private airlines since the 1950s emerged in 1992, a year after Prime Minister PV Narasimha Rao ended a system of licences for starting businesses, eased import controls and let multinational companies enter the country. Six airlines sprang up.
Two of those survive: Sahara Airlines and Jet Airways, which went on to supplant Indian Airlines as the nation's largest domestic carrier in 2003.
In 1992 Jet Airways chairman Naresh Goyal persuaded Gulf Air and Kuwait Airways to invest $4 million each in his carrier. He attracted business travellers as the government's move to open the economy took hold. Jet Airways got government approval to fly overseas in 2004.
Jet Airways went public last February and within 15 minutes investors had bought all the 17.3 million shares offered at 1 100 rupees, making Goyal a billionaire. Jet Airways now has a fleet of 51 aircraft. At the Paris Air Show, it released plans to buy 10 planes each from Boeing and Airbus and has options to purchase another 10 aircraft from each manufacturer.
The total order would be as much as $9.1 billion at list prices. Air Deccan has a different strategy. The budget carrier targets smaller cities, betting that people like the Behals will hop on a plane if the price is right. In December Air Deccan added the cities of Pune and Srinagar to the 44 it serves, passing Jet Airways as the airline with the largest domestic network.
Air Deccan, which started with a leased turboprop plane in September 2003, is adding a new plane every month. In January 2004 the government removed a 15 percent tax on tickets and halved the excise duty on jet fuel to 8 percent. The Congress Party-led alliance that came to power in 2004 is continuing the aviation-friendly strategy.
"We've come to recognise that aviation is an integral part of the growth process in India," says Praful Patel, the government's minister for aviation.
India's state-run airlines are bulking up to fight the upstarts. In September, Indian Airlines ordered 43 planes from Airbus. Air India plans to sign orders for 68 aircraft from Boeing by March 31, the date by which it expects to have completed its IPO.
Air India now carries 26 percent of international passengers, compared with 40 percent a decade ago. "If Air India and Indian Airlines don't merge, they will be on the verge of disaster in one year," says Capa's Kaul.
The aviation minister says there are no plans for a merger. Instead, Patel says, his priority is to fix the airports. The government has started to modernise airports in Chennai, Kolkata, Mumbai and New Delhi, and approved new ones at Bangalore and Hyderabad.
Kaul expects a tax cut on aviation fuel within two years, and GoAir expects Indian tourism to boom. Airlines are also gearing up for international travel.
Last April India and the US signed an open skies pact. India, which gets fewer tourists than Thailand, has similar deals with Australia, Canada, Germany, Singapore and the UK. Investors willing to brave the turbulence may be rewarded as India's new middle class gets airborne.
- Bloomberg