The Cabinet's decision to allow private airlines to fly to destinations in South Asian Association for Regional Cooperation countries may see Indian Airlines losing passenger traffic to Jet Airways and Air Sahara.

Indian Airlines offers 1,736 one-way seats a week on the Chennai-Colombo sector, which sees 90-92 per cent occupancy.

The four flights it operates weekly from Delhi under a codeshare arrangement with Sri Lankan Airlines have an average occupancy of 80-85 per cent. The five flights from Mumbai and two from Tiruchirapalli also do good business.

As if losing its monopoly on these routes was not bad enough, Indian Airlines could take a severe hit if the private airlines tied up with foreign airlines for cross-feeding.

Air Sahara chief executive officer Uttam Kumar Bose said he was talking to a few Southeast Asian airlines for such an arrangement.

"We will fly passengers from Chennai to Colombo from where they can move on to destinations in Southeast Asia or even to Europe," Bose said.

"Our operating margins will improve substantially. Aviation fuel is much cheaper abroad, and landing and parking charges in foreign countries are 40 per cent lower than in India," Bose told Business Standard.

Industry analysts are of the opinion that the per seat cost of a one-hour flight in the domestic sector is 10 per cent higher than in the international sector.

However, Bose said rather than cutting into Indian Airlines' market, Sahara was looking at ways to expand the market.

"We are holding talks with hotels to suit various pockets. As flights to Colombo can start as early as Christmas, we will announce the packages available for Sri Lanka in a week's time," Bose said. Sahara is also in talks with road transport companies to promote tourism packages.

Senior Indian Airlines executives were, however, unruffled at the prospect of losing business to rivals.

"It will only help us trim our losses as these routes are not lucrative. For instance, flights to Pakistan, scheduled to restart on January 1, serve only diplomatic purposes," they said.

The officials did not comment on competition in the Colombo, Kathmandu, Dhaka and Maldives routes, which see higher passenger traffic.