India's Aviation Developments Could Spell Better Deals

<B>India's Aviation Developments Could Spell Better Deals</B>

By Neelam Mathews

<I>New Delhi</I> - Ongoing aviation bilateral talks and increased air seat capacity expected from July 2000 have travel management companies in India predicting better negotiated deals for corporations traveling to the country.

While the military coup in Pakistan has created an element of instability in India's external relations, according to Kuoni India, business travel is expected to grow at 5 percent to 7 percent per year until 2010.

"With business getting more globalized, corporations need to travel in all directions," said GE CEO Scott Bayman. "However, the lack of air seat capacity from India to Southeast Asia is hurting business."

With no seasonality in traffic, intra-regional business travel has been affected adversely as oriental carriers have a monopolistic position on the Asia/Pacific routes. India faced a major capacity crunch on international sectors in 1999, when airlines reduced discounts on corporate rates from 5 percent to 3 percent.

British Airways chairman Lord Colin Marshall said India would lose potential foreign investors due to shortage of capacity. "Britain forms the gateway to the European single market for the Indian business community that has 134 wholly owned subsidiaries and 83 joint ventures in the United Kingdom," he said.

To meet the market demands, Austrian Airlines, Sabena and Swissair all recently have obtained additional traffic rights to India. And newcomer to the region Virgin Atlantic will fly three weekly flights into Delhi starting in July. Virgin's codeshare with Air India is expected to be extended to U.S. routes, increasing capacity.

Virgin's entry is expected to spark off a spate of fare wars. Virgin chairman Richard Branson warned that "once we begin daily frequencies, we could launch a real price war with BA." He said Virgin was planning to charge business class fares for first class and provide airfares 30 percent to 50 percent less than BA's economy class fares.

Meanwhile, Swissair country manager Felix Rodell said daily frequencies from Delhi and Mumbai from mid-July would put his carrier in a better position to manage negotiated rates as daily frequency of a carrier is a prime consideration for a business traveler.

However, "corporates want firm commitments," said Malvinder Rikhy, Ind Travels-Carlson Wagonlit country manager of sales and marketing. "They have indicated this year if percentage on volumes booked cannot be increased, travel management companies must carry out quantifiable confirmed upgrades and free tickets."

Even as travel and entertainment expenses are scaled down by 25 percent in 2000, as compared with the previous year when the cut was as high as 55 percent over 1998, travel management companies said the additional 20 percent supply of airline seats on the West-bound sector will lead to more value adds.

"Yields are down, despite the increase in sales of air tickets," said Travel Corp. of India's branch manager Homa Mistry. "Clients pressure us to include value adds, including upgrades and free transfers, to the lower negotiated rates."

In order to extract better deals, corporations have started looking at long-term external and internal commitment to airlines. "Clients need to appreciate that they must leave some meat for the airlines by not squeezing them too much," said Rikhy. "Once airlines start looking at yield management and find their profits dropping below dangerous levels, negotiated deals will not be given preference.