The domestic Indian civil aviation market clocked the fastest growth for the third year in a row. Past two years have been terrific with the sector witnessing 18-20% growth rate making it one of the fastest growing industries in India. While its partly because the sector is now compensating for the much lower growth it clocked in the preceding years, it’s a welcome change as aviation has long been the neglected child of Indian economy. Credit must go to the bureaucracy and government as a whole for making this turnaround.

Tier II cities are driving this impressive rise in passenger traffic & the “UDAN” scheme implemented by the government promises to be a game changer by taking flying to masses. The government has ambitious plans to open 50 unused airports by 2020 and has also given approval for 18 greenfield airports.

The latest data released by aviation regulator puts the domestic air traffic to nearly117 million passengers in 2017. While Indian is ranked 9th in terms of civil aviation market size with $16 billion now, according to separate studies done by AITA & FICCI, it is poised to become third largest aviation market overtaking UK sometime between 2020-2025 and will trail only US & China.

For a change, government is ahead of private sector in taking initiatives and even taunted the industry to make use of the better policies & new capacity created. Airlines have been slow to respond to these changes primarily because they are struggling to cope with the pressure of rising oil prices and other costs.  

There is a widespread misconception that  Aviation is a glamorous and profitable industry

While the overall picture of the aviation does appear to be rosy, the reality is, more needs to be done to support the airlines. Bankruptcy of Kingfisher, continuously loss making Air India and now alarm bells at Jet airways is a worrying sign. While mismanagement can be attributed for the fall of Kingfisher, other airlines are also not doing particularly well & though there is a positive narrative of the aviation sector as a whole, it’s important that airlines are provided the much-needed support.

 

There is widespread misconception that the airlines industry is glamorous business with high profits. Reality is, they operate on razor thin margins.  With the advent of low cost airlines and the competition it has brought, these margins have gone down further south.

Aviation is a costly business. Passenger jets alone contribute the largest share of that cost which can be anywhere between $50 million to $300 million depending on the size of the aircraft. The air turbine fuel comes next and then there are expenses like maintenance costs, salaries to crew & pilots, airport landing charges, charges paid for navigation and air traffic control, fees paid to travel agents and Web sites, training and a long list of taxes among others.

Richard Branson once famously said, “if you want to be a Millionaire, start with a billion dollars and launch a new airline”. The current billionaire president of United states, Donald Trump lost a fortune on his aviation venture and defaulted on payments ultimately surrendering the ownership to creditors.

 

The point here is that it’s tough to be in aviation business. With ATF fuel in India among one of the most expensive in the world, it becomes even tougher. While there is strong lobbying by the airline industry to bring ATF under GST which will substantially reduce the tax eventually making it cheaper, the chances of that happening anytime soon are very remote.

While it’s possible to hedge against higher ATF prices which would ensure continuity, airlines will end up paying more even when prices come down. The fuel cost however is highly dynamic and not something which can be controlled or predicted. We therefore focus on other aspects which are more controllable.  

Providing competition to airports

While India’s civil aviation policy in 80s recommended against constructing any new airports in the vicinity of existing ones, this argument no longer holds valid now. As tier II cities rapidly add to the air traffic, bulk of airlines business still comes from metros. A monopoly of airports in major cities is definitely not helping airline’s case. Landing charges and other fees at the major airports constitute a big chunk of ticket prices. London is a perfect example of how more choice can benefit airlines and allow them to operate cheaper flights. With five major airports in the city, airlines are able to negotiate much better deals for them. While a new airport in Noida and Navi Mumbai are planned, reality is, idea was mooted over a decade ago and even land acquisition has not been done for it. A faster implementation will definitely help the under-pressure airlines.

Ramping up airport capacity & reducing air traffic congestion

Airport capacity at all major metros are already reaching its peak utilization. With no immediate long term planning in sight and given the projected growth in the air traffic over next five years, only groundbreaking policies and measures can save the day for Indian Aviation in absence of which skies in major cities will soon resemble Delhi & Mumbai traffic on roads.

Airlines which are already under pressure on fuel prices, end up burning gallons of fuel in air while waiting for landing due to air traffic congestion. This only bleeds them further. Digitization & satellite-based navigation can help reduce this congestion and already finds mention in the civil aviation policy 2016. A start has been made by launching “GAGAN”, India’s 1st satellite-based navigation system to improve accuracy & efficiency of air navigation services. and this needs to be implemented at all major airports at the earliest.

 

Low cost airport design

One size doesn’t fit all. Needs of a low-cost carrier are significantly different than full service airlines. Airport designers need to keep in mind the requirements of low-cost carriers while planning the airports. While this also finds mention in the new civil aviation policy, there is need to ramp up the development at a faster rate. Cheaper terminals need to be offered at the existing airports in metros along with new low-cost airports.

 

Further Infrastructure demands

Indian airlines have together placed an order of over 1000 new jets to be delivered over next 7-8 years. While approximately 30% of these orders are for replacing existing jets, with no immediate infrastructure planning in sight, we are staring at a parking crisis at Indian airports. Security, Air traffic control, baggage systems are other areas which will need attention apart from commissioning latest Cat-III B Instrument Landing Systems. While this is already being done at some airports, airlines will be able to take full benefit only when majority or all airports are equipped with this system. In absence of this, smaller airports will divert flights to already congested metros during winters which will only make matters worse for congestion while burning more dollars in the skies for airlines.

 

Guidelines to airlines

Airports and airlines really need to start working in partnership. While they can work together in a number of areas to reduce costs, airports can start engaging airlines more constructively and issue guidelines to lower costs. With low cost airlines like Indigo from India and South west airlines of US making profits, there is definitely something which these airlines are doing better which others are not. One of these things can be standardization of fleet which brings down maintenance costs substantially. Airports are in a god position to engage airlines on such matters and play a constructive role in supporting them.

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