"Lunch" served aboard the Mumbai-Delhi
Spice Jet noon flight is usually a red-uniformed
stewardess offering a cookie from a tray, but the
cookies might soon disappear as India's
cash-strapped low cost carriers struggle for
survival.
The big flying fish are gobbling
the smaller ones as the civil aviation market,
growing at 18% annually, rushes into a
consolidation phase.
The International Air
Transport Association (IATA) in its latest
estimates this October
reckons India to be a driving force behind the
world's civil aviation business that is globally
expected to grow from US$5.1 billion to $5.6
billion this year.
According to IATA,
Asia-Pacific-based airlines increased their
passenger carrying capacity by 42%, far higher
than European and North American airlines. The
rise was driven largely by huge growth in Indian
and Chinese air traffic, turning Asia into the
world's fastest growing aviation market.
But both India and China are struggling to
cope with demand. India will need 6,000 more
pilots to meet the anticipated doubling of
passenger traffic over the next decade. China
needs 9,000 pilots by 2010 and the General
Administration of Civil Aviation of China said it
had capacity to train only 7,000 pilots.
India's civil aviation ministry expects 80
million passengers by 2020. The number of air
travelers increased by a record 38.5% in 2006-7,
yet the growth isn't bringing happy grins to the
faces of airline owners, for now. The industry
lost $500 million last fiscal year, observed
regional market watcher Center for Asia Pacific
Aviation (CAPA).
Rising operating costs
largely due to fuel prices, higher taxes and
competition are driving weaker airlines to either
merge, raise fresh capital - or go bust.
"The acquisition of smaller or loss making
airlines is going to shift the power in the
industry from the consumers back to the airlines,"
Kapil Kaul, chief executive officer of CAPA, said
during a panel discussion on the industry.
Domestic fares are up by an average of 10%.
The party might not yet be over for
low-cost carriers (LCCs), but the days of $2
tickets look to be over. Budget airfares are still
available at $10 but taxes drive up overall costs
and drive back borderline air travellers to
air-conditioned trains.
For instance, low
cost airline Spice Jet's 9.00pm Mumbai-Delhi
flight, SG 118, lists an attractive $17 ticket
(compared to the $208 regular economy fare of
non-low-cost carrier Jet Airways) but the taxes
total $39, including a $30 fuel surcharge and a
ridiculous $3 "congestion charge" for fuel burnt
while hovering over cities in sometimes
30-minute-long landing queues at airports, for
which pleasure the passenger has to pay.
The net fare, $56, is getting competition
again from the $37 economy ticket on the luxury
Mumbai-Delhi Rajdhani Express, inclusive of ample
meals served during the 16-hour overnight journey.
India's first low-cost carrier, Air
Deccan, which took to air in 2003 and set off the
LCC boom in the sub-continent by luring top-end
train travelers, reported a $43 million loss for
the fourth quarter ending June.
To keep
afloat, Air Deccan sold 26% of stake this May at
$136 million to liquor baron Vijay Mallya's
two-year-old Kingfisher Airlines, which itself is
losing $253,000 a day.
Bigger mergers and
acquisitions are changing equations in a market
shakeout. After prolonged dithering, the
government-owned Air India gobbled up domestic
carrier Indian (formerly Indian Airlines) to
create a new holding company, National Aviation
Company of India (Nacil). The combined entity owns
a behemoth fleet of 112 aircraft, a third of the
national strength. Air India has ordered 111 more
aircraft.
This April, India's largest
private carrier, Jet Airways, bought rival Air
Sahara for $340 million, after an earlier deal
went sour. Jet Airways has ordered 20 Boeing
737-800 aircraft to add to a fleet of 60.
Most of the other 16 scheduled airlines
registered with India's Director General of Civil
Aviation are paring down fleet expansion and
looking for fresh capital to keep flying.
Another low-cost carrier, Go Airways, is
considering plans to sell a 26% stake. The Air
India combine is also planning an initial public
offering to hive off 10-15% a stake for additional
funds to stave off competition.
One way
out is going international, and the government is
fending off strong lobbying pressure to allow more
domestic airlines to serve lucrative overseas
routes. Presently, an airline must have operated
in the domestic market for five years to be
eligible for an international lisense. The
industry wants the eligibility period to be
reduced to three years, but the government seems
unlikely to relax the five-year norm.
The
Indian government is also considering raising the
foreign direct investment (FDI) ceiling in civil
aviation, which is currently 49%. Subject to
cabinet approval, 100% FDI might be permitted in
allied businesses such as seaplane companies,
pilot training, helicopter operators and
maintenance services. But it's unlikely Singapore
Airlines can entertain hopes of buying out Spice
Jet in the near future.
India's civil
aviation industry will attract investments worth
$150 billion in the next 10 years, Civil Aviation
Minister Praful Patel said on October 8, but the
present challenge is offering competitive low
fares amid increasing operating costs - and an
overloaded infrastructure ranging from congested
airports to overworked air traffic controllers.
Air Deccan's tagline, "Simplifly", has just got a
bit complicated.
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