Indian airlines' global traffic growth slumps

Kingfisher & AI woes, lack of good airports and freeze on permits for new flights all contribute to the decline

There has been a substantial fall in the growth rate of international passenger carriage by Indian airline companies during 2011, as compared to 2010.

Among the reasons are ailing Kingfisher Airlines pulling out flights and the financial problems of carriers, leading to reliability issues.

International passenger carriage by Indian airlines - Air India (AI), Jet Airways, Kingfisher, SpiceJet and IndiGo ply abroad - rose during 2010 by 16.2 per cent. Directorate general of civil aviation (DGCA) data shows they carried 13.2 million passengers on flights abroad in 2011, a rise from 12.9 mn in 2010. Or, a percentage rise of barely three per cent.

The Indian carriers witnessed a decline in international passenger carriage of 14 per cent, 16.9 per cent and 14.8 per cent in the months of October, November and December, the period when Kingfisher started pulling out flights. International carriers, however, increased their passenger load by 9.3 per cent to 26.7 mn during 2011 from 24.4 mn during 2010.

The growth in number of international passengers, inbound and outbound, during the period also slowed to 7.5 per cent, to 39.9 mn This number had grown in 2010 by 11.4 per cent to 33.3 mn in 2010.

Reasons

Insiders feel Indian carriers lack in reliability, public perception and network, with things getting worse after Kingfisher's pull out. "All the full-service Indian carriers are in bad financial shape, thus impacting their operations. This has raised questions on their reliability and has earned them a bad name. The pull out by Kingfisher and various strikes in AI has also impacted the public perception about Indian carriers," said Ajay Prakash, president of the Travel Agents Federation of India, representing half of the country's travel agents.

He said there was a time when AI was one of the top 10 airlines in the world. Not now. "International carriers provide brilliant network and service, attracting passengers," he added.

Some airlines say the government's long freeze on new applications for Indian carriers to fly abroad has led to this. "The foreign carriers are utilising almost all their bilateral rights in most of the cases but we have been barred from going international to protect our national carrier (AI). Had we been allowed to go international, things would have been much better," said a senior Jet executive, who did not want to be identified.

India has signed bilateral rights with 109 countries and offers carriers 834,000 weekly seats on international air routes. Indian carriers utilise only 22.7 per cent of the total bilateral quota, contrary to around 40 per cent utilisation by foreign carriers. Of the 22.7 per cent utilisation by Indian carriers, AI has 11.9 per cent and the other four private carriers that fly abroad together utilise the other 10.8 per cent.

Measures

New civil aviation minister Ajit Singh has just recently allowed increasing the utilisation of foreign bilateral rights for Indian carriers to 40 per cent from the summer schedule, starting April.

However, others say much more is needed. "We cannot compete with international carriers just by more flights. The bigger problem is that the international carriers have been allowed to fly even to smaller cities, where they get lot of passengers. Even if we fly more, it will be difficult for us to recover the market share lost dee to Kingfisher's absence," said a senior AI executive, who did not want to be identified.

He further said there was a lack of world-class airports, which could become hubs. "Passengers are ready to take a stop at Dubai and Frankfurt but the same passengers do not want to stop at an Indian airport. Barring Delhi, we do not have any of international standard. Foreign carriers also attract a lot of traffic (through the sixth freedom, the right of a commercial aviation company to fly from a foreign country to another while stopping in one's own country for non-technical reasons) that they route through their hubs," the official added. A sixth of the total traffic foreign carriers have is through this, routed through their hubs to their respective destinations.

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Airport fee: Ajit Singh rules out changes in aviation rules

New Delhi, March 25:

The Civil Aviation Ministry has ruled out the possibility of amending the Airports Authority of India (Major Airports) Development Fees Rules, 2011, which allowed the levy of development fee by private airports.

The Opposition has moved amendments to the rules in the Rajya Sabha saying that the Government should not levy development fee from the passengers. The matter, which could not be taken up in the winter session, is likely to be considered during the current session of Parliament.

Legally in order

In a letter to the CPI (M) MP, Mr K.N. Balagopal, who has moved the amendments in the Upper House, the Civil Aviation Minister, Mr Ajit Singh, said that the rules framed are in accordance with the provisions of the Airports Authority of India Act and are legally in order.

Mr Balagopal had challenged the Government's decision to allow the private airports to levy development fee.

He had said in a letter to Mr Singh that no charges should be levied unless the amendments to the rules are discussed in the Rajya Sabha.

Law Ministry views

Mr Singh said in his reply that the Ministry examined the modifications proposed by Mr Balagopal.

"I would further like to inform you that modifications suggested by you were also examined in consultation with the Ministry of Law and Justice which is of the considered opinion that rules framed under the Act are in accordance with provisions of the AAI Act and are legally in order," Mr Singh said.

Mr Singh told Business Line that the new set of rules for the AAI Act were laid after a Supreme Court order on the issue of collecting development fee.

"Two airports have already started using the fee for the development of infrastructure. So, there is no point now in amending the rules," he said.

Mr Balagopal, however, challenged this position. "The Minister is trying to protect private airports by misinterpreting the Supreme Court order. His letter is misleading. Parliament has the absolute authority to amend rules and the matter should be discussed in the Rajya Sabha at the earliest," Mr Balagopal said. 

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What Indian aviation needs to do to fly higher

March 25, 2012:

The Vijay Mallya-led Kingfisher Airlines may be struggling to stitch together a flight plan to stay afloat. Jet Airways could be facing tax problems of its own. Five out of the six Indian carriers have posted losses over the last three quarters.

But chieftains of global aviation industry describe this phase as but another "air pocket," which will soon pass and clear the runway for domestic aviation to take off on a more sustainable growth path.

This, clearly, was the postscript of the five-day 'India Aviation 2012' that recently concluded in Hyderabad, attracting global players in the airlines, airport and engine manufacturing sectors.

A stellar period

Indeed, the Indian aviation sector gained substantial altitude during the Eleventh Plan period, climbing to the perch of the ninth largest civil aviation market in 2011.

Not only did passenger throughput swell from 73 million in 2005-06 to about 150 million last year, but this period also saw four international airports getting completed.

The investment made by private airport operators was about Rs 30,000 crore in the last five years, involving greenfield airports in Hyderabad and Bangalore and modernisation of Delhi and Mumbai airports. Not only this, by 2011, five Indian carriers were operating on international routes and India had bilateral agreements with 104 countries.

But, aviation experts maintain, this is only the beginning of the Indian aviation story. India now plans to be among the top three aviation markets by 2020.

Aviation players see this as an achievable goal, given the right policy initiatives and a stronger Government-industry interaction. Boeing estimates that travel to, from and within South Asia is expected to achieve an average annual growth rate of 8.1 per cent in the next 20 years, outpacing growth in all other regions.

Airbus has revised its market forecast for India, stating that the country will require 1,040 aircraft worth $145 billion in the next 20 years. A KPMG-FICCI report shows that the Indian aviation industry is today worth $12 billion, with the airlines and airport segment constituting about four-fifths of this. And investments worth $50 billion are envisaged in the next five years or so.

Estimates from the Airport Authority of India and the private sector indicate that Indian airports would require an investment of about Rs 65,000 crore during the next Plan Period, of which Rs 50,000 crore will come from the private sector.

While Indian carriers plan to increase their fleet size to 800 in the next five years, the general aviation sector is likely to see $4.3-billion worth investment, with the addition of 300 business jets, 300 small aircraft and 250 helicopters.

Bumps on the way

But despite the global optimism, the flight path for this sector is not without its turbulence. Supply outstripping demand, spiralling jet fuel prices, rupee depreciation, stiff interest regime and intense competition are some of the factors that have kept profitability of Indian carriers under severe duress.

The KPMG report points out that five out of the six Indian carriers have posted losses over the last three quarters - some have not been able to net a profit ever since their operations began. All the three listed carriers have posted consecutive losses for the three quarters of the current fiscal, piling up crushing debts.

"Between 2008-09 and 2010-11, Indian carriers, barring Air India, have accumulated losses of about Rs 10,000 crore. And that this is happening despite an over 15 per cent annual growth in passenger traffic points towards systemic flaws in the industry," it says.

Kingfisher Airlines' woes are well-known, having come to such a boil that doubts are being whispered on how long Mr Mallya could remain in the cockpit.

Doubtless, high cost of air turbine fuel (ATF) has been the cardinal dampener. ATF accounts for more than 50 per cent of airlines' operating cost, while it is half of this in other countries. Sales tax in Gujarat for instance is as high as 30 per cent, while it is 29 per cent in Tamil Nadu and Madhya Pradesh.

According to KPMG analysts, ATF in India is nearly 60 per cent costlier than competing hubs such as Dubai, Singapore and Kuala Lumpur. The Government has agreed to the airlines' demand for direct import of the fuel. But, the KPMG reports says, this may actually bruise India's brand image.

ATF import will hurt

"India is an ATF-surplus country that exported nearly 45 per cent of its ATF production in 2010. It may appear strange that airlines in an ATF-surplus country end up importing fuel just to work around the prevailing taxation policies," it says.

And direct import of the fuel may not be as promising for airlines as it sounds. For, carriers will have to depend on oil companies, which could charge a premium for handling imported ATF.

"There is also the risk that some State Governments may put entry taxes on imported ATF once they realise their tax revenues are being compromised," the report points out.

What, then, is the way forward? Notification of ATF under the 'declared goods' category with a uniform application of 4 per cent sales tax, improvement of air connectivity to tier-2 and -3 cities, implementation of the 49 per cent foreign direct investment limit policy, close collaborations among Ministries related to the sector, development of regional airports and promotion of allied sectors such as maintenance, repair and overhaul could be some of the starters.

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Hind Aeronautics calls bids for new MMRCA complex

Bangalore, March 25:

Defense aircraft maker Hindustan Aeronautics Ltd has invited bids to build a new design and manufacturing complex in Bangalore for MMRCA fighter planes.

The facility is estimated to cost Rs 360 crore and is to be completed two years from the award date.

The IAF is acquiring at least 126 MMRCAs (medium multi-role combat aircraft) to modernise its ageing and depleting fleet.

The MiG-21 fighters are to be phased out from 2014. The Navy is also expected to top up the order.

The tender for the new production unit comes even as the Government's Contract Negotiation Committee is negotiating the cost of procuring the fourth-generation fighters with the finalist vendor, France's Dassault Aviation.

HAL plans to locate it at Challaghatta where it has large tracts of land. The integrated 'green' factory complex will include hangars, runways and residential units.

The area is close to the old international airport, which was closed to commercial flights in May 2008.

The HAL defence airport continues to operate military, VVIP, charter and select non-scheduled flights into and out of Bangalore.

The Ministry of Defence said in February this year that a Contract Negotiation Committee had started negotiations with the L1 MMRCA bidder, France's Dassault.

This was for its lower price over the European Eurofighter consortium for its Typhoon. Dassault - if and when an agreeable price is reached in the coming months and the contract is sealed - will directly supply 18 Rafale MMRCAs to the IAF.

HAL will build the remaining 108 aircraft. It will be its first export of Rafale, which has also been used in Afghanistan and Libya.

Keenly watched

The MMRCA acquisition is said to be this century's largest and most keenly watched defence purchase contest.

The order is estimated at a minimum of around Rs 50,000 crore ($10 billion)

Also in the race were Boeing IDS (F/A-18 Super Hornet); Lockheed Martin (F-16IN Super Viper); Sweden's Saab (JAS 39 Gripen) and Russia's RAC MiG (MiG-35).

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Jet merges operations in rebranding exercise

etlite was formed after Jet Airways taking over Air Sahara, while Jet Airways Konnect was launched in 2009 to provide low-fare and value for money service.

New Delhi, March 25:

Jet Airways has announced the operation of JetLite and Jet Airways Konnect under one brand 'JetKonnect' from Sunday. With this, passengers will have the option of choosing full service on Jet Airways and low-fare service on JetKonnect.

Merger

JetLite was formed after Jet Airways taking over Air Sahara, while Jet Airways Konnect was launched in 2009 to provide low-fare and value for money service.

With the merger of these two brands, over 400 out of 600 flights being operated on Jet network are likely to be in the category of low-fare.

Jet Airways has already said that this merger is part of a strategic rebranding exercise.

It will simplify the group's service proposition and enhance brand recall, it added. The flights will be operated with a mixed fleet of Boeings and ATR aircraft on metro, tier II and III routes.

JetKonnect will offer premier services on certain routes where passengers may enjoy service identical to that available on flights of Jet Airways. This will be further expanded in a phased manner.

The cockpit and cabin crew will don the same uniform as their counterparts from Jet Airways.

Some JetKonnect flights will operate under the S2 code, while others will have flight numbers prefixed by the 9W code. 9W and S2 will also continue their existing code-share agreement enabling travellers to enjoy seamless connectivity between India and the world.

Mr Sudheer Raghavan, Chief Commercial Officer of Jet Airways, said, "The launch of brand JetKonnect is the culmination of a well-coordinated effort. We are confident that this initiative will be well accepted by all our guests.

The Jet Airways Group is continually looking at opportunities to optimally deploy and cross-utilise common resources of Jet Airways and JetLite wherever possible and this rebranding exercise will help further in synergising the airlines' collective operations."

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No strike, says Air India union

New Delhi, March 25:

The threat of Air India's services being disrupted from April 2 seems to have receded.

This follows the Air Corporation Employees Union (ACEU) claiming that there will be "no strike" by ground staff, cabin crew and other categories belonging to its union.

A section of the airline staff had threatened to go on strike from April 2 unless their salary dues were paid. The unions claimed that airline employees had not been paid for the past six months. The call for a strike was given after the unions rejected the management's proposal to settle the dues in a phased manner by May.

"Every summer, Air India workers are instigated by disgruntled elements to go on strike. Time and again, certain vested interest groups mislead people, in general, to create confusion among the passengers of Air India and, as a result, passengers stop making future bookings and this gives benefits to our private rival airlines," the ACEU said.

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