Still, optimism in the air for domestic aviation sector

It might be early days yet, but the flurry of positive activity over the last month could provide the domestic aviation sector something to cheer about. After months of cancelled flights and then the shutting down of Kingfisher Airlines, things could be getting better. First came the news of a possible tie-up between Jet Airways and the Abu Dhabi-based Etihad Airways. Then, on March 6, the Foreign Investment Promotion Board (FIPB) granted in-principle clearance to the Malaysian low-cost airline, AirAsia’s proposal to set up a domestic airline in India jointly with Tata Sons and Telestra Trade Place Pvt Ltd. Then there is also the Singapore based low-cost airline, Tiger Airways, which is looking at expanding operations in India.

Stumbling blocks

Of course, there are initial hiccups. AirAsia’ proposal did not go down well with the Ministry of Civil Aviation which sought clarifications on FIPB’s in-principle clearance to the airline to start operations. The Civil Aviation Ministry has sought clarifications on whether the policy change allows foreign direct investments by foreign carriers only in existing airlines or whether new start-up carriers are also included in this. If and when AirAsia is given permission to start operations, it will be the first new private airline to fly on domestic routes after August 2006, when the Delhi-based low-cost airline IndiGo took to the skies. The new start up airline, which is going to be headquartered in Chennai, plans to launch services by the fourth quarter and link tier II and tier III cities. The launch of AirAsia could see more routes opening up for Indian travellers. So, a traveller, say from Madurai, will be able to fly the Indian arm of AirAsia to Chennai before connecting possibly on to another AirAsia flight that will take him to Bangkok. Similarly, a resident of Mangalore could travel on an AirAsia domestic flight to Bangalore before connecting with a flight to Kuala Lumpur.

Expansion plans

Currently AirAsia, Asia’s largest low cost airline with 118 aircraft, operates 63 weekly services from Kuala Lumpur and Bangkok to Chennai, Tiruchi, Kochi, Kolkata and Bangalore. And, with AirAsia’s global tag line ‘Now every one can fly’, travel could also become cheaper. In an industry where each player watches what the other is doing, any lowering of prices by one will attract a response from the other airlines, which will benefit passengers. A day before the FIPB nod for AirAsia, Tiger Airways indicated that it was looking for a “strategic partner” in India. While Mr Kaneswaran Avili, Commercial Director, Tiger Airways, declined to spell out the details of what was being considered, company officials said that its tie-ups in other parts of the world had seen it acquire substantial stakes in Mandala Airlines of Indonesia and SEAir of Philippines. The airline could perhaps be looking at replicating this in India. At the moment it flies between Singapore and six Indian cities, including Chennai and Bangalore. The airline has sought the Government’s permission to launch more flights on the Chennai-Singapore route. All these developments took place in the back drop of Jet Airways being in talks with the Abu Dhabi’s national carrier, Etihad for selling it a stake. Though very few details are available on the proposed stake sale, the first step indicating that things were on track between the Indian and Gulf carriers came on February 27, when Etihad issued a press statement confirming that it had conducted a transaction with Jet Airways to purchase three pairs of its slots at London Heathrow for $70 million. While all these developments taking place simultaneously may just be a coincidence, it is not difficult to understand why there is so much activity in the Indian aviation market. To begin with, the number of Indians travelling abroad has seen a phenomenal growth.

Vying for a booming market

The World Travel and Tourism Council estimates that the number of Indians travelling abroad has crossed 12 million and is likely to touch 50 million by 2020. The Chief Economist at the International Air Transport Association (IATA), Brian Pearce, also recently pointed out that globally passenger numbers are likely to increase beyond the three billion mark in 2013. IATA also predicts that Asia Pacific airlines will retain the strongest margins in 2013. Perhaps another reason that is tempting foreign airlines to look at investment either directly or through tie-ups with existing airlines in India is the fact that in the domestic aviation sector, India is one of the least penetrated markets. While there is one commercial aircraft for every 3.2 million Indians, the figure is one commercial aircraft for every 900,000 in Philippines, one for every 1.14 million in China and one for every 600,000 in Brazil. This a large gap waiting to be bridged and perhaps that is why investors or new airlines are willing to overlook the fact that the domestic air traveller market saw a dip last year as compared to previous years and also the various procedural and infrastructure problems that they will have to encounter.

Source: Hindu Business Line

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