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Revolution in the air in
India
By Indrajit Basu
Ask any traveler who has tried to book a
flight to or from India during the holiday season
between October and February and he will tell you
it's almost impossible to get a seat. Domestic
flights too are overbooked during this time, when
the cooler climate, thrown in with plenty of sun,
attracts hoards of tourists and businessmen to
India just as an equally large number of
wanderlust Indians travel out.
But such
problems may soon be history, as a mix of policy
changes and bilateral pacts with a few countries
promise to bring about a revolution in India's
civil aviation history. The policy push came in
four stages starting from September, when the
government granted airlines from nine countries
rights to operate a daily service to any two metro
cities in India, on a reciprocal basis. The
countries are: the UK, Australia, Taiwan, Korea,
Kenya, Sweden, Finland, Kyrgyzstan and the Slovak
Republic.
Soon after, the government
cleared an almost 14-year request by the two
state-owned airlines, Air-India and Indian
Airlines, to expand their fleets. Raising of the
foreign investment limit in the local aviation
sector from 40% to 49% followed in October. And
finally, after the recent bilateral pacts with Sri
Lanka and Singapore, and multiple-carrier status
for aircraft from India granted by three
Association of Southeast Asian Nations countries -
Singapore, Malaysia and Thailand - low-cost
airlines from these countries were allowed to
enter India just as permission to private Indian
airlines (with five years' flying experience) was
given to fly to all global destinations except the
Gulf. This means that in about six months, at
least two local carriers - Jet Airways and Sahara
Airlines - would be able to operate in key but
short-haul destinations such as Singapore, Hong
Kong, Bangkok and Kuala Lumpur. Until now, private
local airlines were only allowed to operate within
the country.
Consequently, it is raining
planes in India as state-owned and private
airlines are expanding their fleets with a
vengeance and foreign players are rushing in to
grab a share of the Indian aviation pie. Take a
look at the foreign carrier interest that has been
generated over the past few months. Among the
mainline global carriers, the ones that are
expanding or have already expanded operation in
India include Singapore Airlines, Thai Airways,
Malaysian Airlines, Virgin Airways, British
Airways, Lufthansa, Cathay Pacific, Austrian
Airlines and Qantas. In the budget segment, it was
Singapore's Jetstar Asia that first announced
entry into India. According to the Travel Agents
Association, other overseas no-frills carriers
that have started talking to the Indian
authorities to enter India by May-June include
Singapore-based Tiger Airways and ValuAir, and
AirAsia from Malaysia. Even a Kazakhstan-based
low-cost carrier and Thailand's Phuket Air has
evinced interest in operating out of India.
"The Civil Aviation Ministry has
reportedly received requests from foreign airlines
to operate 1,639 additional services from November
1, 2004, to March 31, 2005," says Kapil Kaul,
chief executive officer of the Indian Subcontinent
and Middle East wing of the Center for
Asia-Pacific Aviation. "The Indian airspace is
looking crowded indeed," says Salim Ansari, head
of the aviation sector of global travel agency
Thomas Cook.
The optimism on India's open
skies is evident within the country too, with
Indian carriers going overboard with fleet
expansions and newer entries. Besides existing
local domestic carriers such as Indian Airlines,
Air Deccan, Jet, Sahara and Jagson, three new
airlines are likely to start operations in 2005.
These are Vijay Mallya's Kingfisher, Nusli Wadia's
Go Airways, and Royal Airways, which is basically
a re-launch of ModiLuft - a local carrier that
went bust a few years back. And all these carriers
will spend about $11 billion over the next five
years to add 300 aircraft to the Indian skies.
"These are exciting times for the Indian aviation
industry," says Kaul, who feels that with "over
325,000 additional seats expected in 2005, up from
275,000 additional seats in 2003-04, India is the
fastest growing aviation sector in the world".
Kapil believes that Indian aviation is
entering a phase that will see the sector taking
its most exciting journey for the first time in
over five decades. Indeed, the global aviation
sector has always complained about the state
monopoly in India. Air-India and Indian Airlines,
the two state-owned and highly bureaucratic
carriers, have traditionally used this monopoly to
check flights into India and growth of new Indian
carriers by restricting their expansion and
blocking potential joint ventures with foreign
entities. Simultaneously, political and
bureaucratic indecision stymied efforts by the two
state airlines to order new aircraft. And even
after the aviation sector was opened partially in
the early 1990s, which saw restricted entries of a
few local airlines, the civil aviation policy
generally remained opaque.
In the absence
of a stated policy, the government's stance on the
subject has changed every time a new minister or a
bureaucrat has taken charge. The result: with
fares in India the highest in the world, domestic
airlines carry just about 30% of total air
travelers, the foreign airlines carrying the rest.
For instance, a typical Delhi-Bangalore round trip
costs $410 - the same as it would from Delhi to
Singapore. Moreover, despite the fact that India
has close to 400 airstrips, airport infrastructure
is deplorable in most parts. Even a big and
important airport like Mumbai faces regular
congestion that causes inordinate flight delays,
though it handles less than half the number of
flights as, say, Hong Kong.
In the new
open-skies era, therefore, the biggest
beneficiaries would be the country's air
travelers. Besides the fact that the days of the
mad rush for seats will soon be over, "additional
capacity will mean lower ticket prices, though the
impact may not be felt for the first few months",
says Kaul. But already a price war has broken out.
Britain's Virgin Airlines has promised to price an
economy-class Delhi-London-Delhi ticket at less
than half - at $400 - the current normal rates,
while the entry of Malaysian Airlines in the
eastern part of the country has seen the price of
Kolkata-Singapore-Kolkata fare come down from $400
to about $318. With the entry of Jetstar Asia
around the middle of this year, industry sources
reckon that the price may crash down to $230.
Another segment to gain substantially from
the liberalized skies would be aircraft
manufacturers. Boeing reckons that of the
300-aircraft shopping list of Indian carriers,
more than 200 would be bought or leased by private
airlines. Boeing is, in fact, contemplating
setting up training and maintenance centers in
India so that private carriers don't have to send
aircraft and pilots overseas for training. "India
plans to spend another $10 billion over the next
five years for airport modernization, which could
benefit many foreign businesses," says Ansari of
Thomas Cook. "This growth will have its
trickle-down effect on tourism, jobs and income,"
adds Kaul. "It is safe to predict that India's air
passenger traffic will grow by at least 20% in the
next five years to reach a total of 50 million."
Nevertheless, protectionism isn't grounded
absolutely just yet. The government still does not
allow foreign airlines to start joint ventures,
and foreign investors say that the limit for
foreign equity stakes from sources with no
significant airline connections, which has been
raised from 40% to 49%, is not "open enough". The
biggest constraints in an otherwise promising
story is the airport bottleneck. Though airport
modernization in 3-5 years features topmost on the
government's agenda, it will take a while for the
results to take effect. Meanwhile, the crumbling
airport infrastructure would make things worse as
passenger and aircraft traffic surge, says Luc
Establie, sales director of Toulouse-based ATR
(Avions de Transport Regional ).
Still,
India's penchant for opening up its skies seems
relentless. Talks began on Thursday between India
and the US on a historic open-skies agreement to
liberalize aviation between the two countries.
Reportedly, India's Civil Aviation Minister Praful
Patel and US Transport Secretary Norm Mineta would
sign a deal next week that would permit
unrestricted air service by airlines of both
countries between and beyond one another's
territory, eliminating restrictions on how often
the carriers can fly, the kind of aircraft they
use and the prices they charge. It would replace
the 50-year-old agreement between the two that was
considered "too restrictive". The biggest
advantage of the new deal, say aviation industry
sources, would be that it will cut red tape and
allow airlines to make commercial decisions with
minimal government intervention. Currently, all
new flights and schedules have to be cleared by
various government authorities in both countries
and resultantly, there is just one Indian carrier,
Air-India, which flies directly from New York and
Chicago. US carriers Delta and Northwest serve the
US market in India.
The new agreement
would also allow other US-based carriers, many of
which are on the verge of bankruptcy, to fly from
any city in the US to any city in India, while
Indian carriers too would get the same chance.
However, according to Kaul, the biggest
beneficiary of the deal would be Air-India since
"no other local airlines have aircraft capable of
flying to long-haul destinations like the US".
Clearly, even if the country's aviation
sector falters somewhat in the short run, air
travelers can look forward to far better deals and
a plethora of new connections in the months to
come.
Indrajit Basu is a
Kolkata-based equity-analyst-turned-journalist
with more than 12 years of experience in
business/finance and technology journalism.
Besides writing for Asia Times Online, he also
writes for US-based publications, as well as IT
companies.
(Copyright 2005 Asia Times
Online Ltd. All rights reserved. Please contact us
for information on sales, syndication and republishing.) |
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