Private airline operators may have a lot to learn from the Indian market. For most of them the first attempt at getting off the ground proved nightmarish. But they are back, still nurturing hopes of being what the national carrier, Indian Airlines, is increasingly finding difficult to be the market leader.The trouble is the market does not seem ready for them. With the aviation industry recording a 1 per cent fall in traffic this year against the projected 10 per cent growth, even the existing players have found the going tough.
In the past one month, three airlines have announced plans to resume operations - ModiLuft, East West and NEPC - all of whom had wound up operations in just over two years of operation after accumulating huge losses and dues to the government. NEPC has resumed services on three routes with just one aircraft while the others have made announced that their service will resume `soon'.
According to NEPC sources, company officials are now looking for funds to purchase more aircraft
and scouting for a non-resident Indian partner to shore up the finances. While the management has been expressing optimism that airline can find its feet even now, company officials doubt if the timing is right.
Industry expects the slow growth to continue for a year or two more owing to the uncertain political climate and the poor industrial growth during the past year. The existing private sector players - Jet and Sahara - are gearing up to small margins for the next couple of years, but are also simultaneously expanding operations to make a mark before the competition increases.
Cash crunch is the biggest problem airline companies trying to make a re-entry will face. Bankers and financial institutions are now hesitant to fund airlines, especially after the first experience of the airline operators. At a meeting of the civil aviation ministry, private operators and financiers, bankers and FIs refused to finance airline operations in the private sector given their fragile financial health.
Most
airlines that are attempting re-entry are now looking for partners who can bring in the funds. As the policy forbids airline companies from having equity participation from foreign airline companies, the Indian companies have to look for non-resident Indians to bring in the funds.
Industry observers say even that is hard to find while the new civil aviation policy is awaited. The policy has been fraught with problems and has gone through several modifications while waiting for Cabinet approval.
Now the final shape of the policy is unclear and bankers still wary about private aviation in India.
Each of these three players will require at least Rs 100 crore - Rs. 150 crore to resume operations and be prepared to carry on for the next 7-8 years without any profits. The companies will also require to purchase aircraft rather than survive on leased aircraft. ``Typically, an airline will require at least 6-7 aircraft to start off with to achieve economies of scale,'' says Kapil Kaul, marketing chief of Sahara
Airlines. Although Sahara started off with just three aircraft, the company has managed to acquire seven now. By May this year the fleet size will increase to nine. The company is also in talks to purchase four 50-seaters for short haul operations.
NEPC has retained 9 planes of the 12 it was operating earlier. But it now plans to buy two more planes so that it can resume operations to a few more destinations. ``We will require a minimum of Rs 90 crore to begin operations. Our infrastructure is in place, but we will need to upgrade. Besides there are dues to the Airports Authority and the government that we need to pay back,'' says an NEPC official.
ModiLuft, which had earlier announced a tie-up with Tailwinds - a British Airways subsidiary - is not without its share of problems. The moment the company made the announcement of resumption of services, UK Air, the company that had leased it aircraft the first time around, began demanding its dues. UK Air had, in fact, paid up the dues to the AAI for
ModiLuft.
Assuming that the companies are able to find the money required for resumption of services, the bigger problems are operating costs for the airline, especially at this time when the market is in a lull. ``We estimate that we can earn roughly Rs 50 lakh per seat per year. The government at that time insisted that 50 per cent of our routes should be feeder routes and another 10 per cent, routes to the North-East. There were times that we would fly with three to four passengers, losing the potential revenue on the other seats on each flight,'' says the NEPC official.
The other problem is the high cost of aviation turbine fuel, which could mean up to 40 per cent of operating costs for the airline, depending upon which aircraft is being used. The private operators pay double the global rate of Rs 7,500 per kilo litre of fuel to Government-run oil companies.For the newcomers the problems can only be worse. The AAI has decided to hike navigation and landing charges by roughly 22 per cent. The airline
operators have also been seeking discontinuation of the inland travel tax and sales tax charged by state governments. The 15 per cent IATT which was first charged by the government during the Gulf war to fund the evacuation of Indians stranded in the region, continues to this day.
With the two surviving private carriers - Jet and Sahara - planning major capacity expansions, the new entrants will also have a hard time establishing themselves, say industry observers.
Both airlines are increasing the fleet size - Jet to 18 and Sahara to 13. Both will acquire short haul aircraft to develop feeder routes. The largest operators is still the Indian Airlines with its 67 per cent share, but that has more to do with the national carrier's network and reach rather than quality of service.
Of course, the biggest competition continues to be Indian Airlines. The airline expects to end the year with a profit of Rs 45 crore - a good turnaround for a company that was deep into losses. And the fact remains that it is
still te largest airline, despite its financial problems.The more recent anouncement that has sent shivers down industry's spine is the the application from the Tatas for a new airline in the domestic sector independent of Singapore International Airlines. Observers say that even if the group comes in with only a technical collaboration with SIA, it is bound to grab a large slice of the market.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
