Introduction
India is projected to be the third largest aviation market by 2020. The aviation sector of our country is on a trajectory of growth. We have seen and read the statistics given by various research firms and the many reports that DGCA comes out with year on year. But have we really progressed? Have we really reached the 2015, we predicted 10 years ago? We relied on the statistics then and we rely on them now. The total aircraft movements have registered a compound annual growth rate of (CAGR) 3.3 % from FY11 to FY14.
Yes, certainly we have travelled quite a distance from where we were in 2011. There are many more players in the market now, more competitive prices and we, as consumers, have benefitted from them. But then why is the sector ailing?
The Current Market
We are a country with 1.2 billion people. Of this, the air traffic stood at 673.83 lakhs for the year 2014 as released in a recent report by DGCA. There is a huge potential in this sector which is untapped. The graph for growth should have been steeper corresponding to the huge potential that our nation has, instead of having a flatter one.
Only 3% of our population contributes to the air traffic. If we look around, a small economy of Ireland sells 25 million tickets for a 5 million population; the US sells three times the tickets of its 700 million residents. The airline companies are not able to capitalise on the opportunity that India provides. The reason behind it is simple; we need good governance in the sector.
The Burdened Lot
The stakeholders are suffering; the airlines company as well as the passengers. The aviation sector has given out airports to be maintained by private players and the cost that has to be bared by the airline companies is one of the highest in the world. In recent news, the civil aviation ministry wants GMR who maintains the Delhi airport to cut down its charges to half for the next 5 years as the first term of tariff fixation with the company comes to an end in March 2015. There is a dire need for the cost to come down as many airlines like Deutsche Lufthansa AG, KLM Royal Dutch Airlines and Air France-KLM have threatened in the past that they would stop flying from Delhi pertaining to the high costs involved here. In March 2013 Air Asia stopped their service to Delhi and Mumbai from Kuala Lumpur due to the same reason.
The Govt. has taken very little steps to ease things for the companies. They got some breathing room when 49% FDI was allowed in the sector. Jet Airways successfully put it to good use by seeking fund as part of merger deal, with Etihad and with 100% FDI in maintenance and repair; Spicejet gave away its maintenance job to a foreign company. Most of the airplanes of Indian Companies are flying to Singapore, Abu Dhabi or Sri Lanka for maintenance or overhaul. DGCA has not been able to keep pace with the growing demand and technological changes.
What Next?
There is a need to do away with the teething problems of the aviation sector. We are still in the nascent stage of developing world class airline connectivity for the country. The current players should chalk out a mission and vision along with the Govt. to have an efficient structure to work in.
We have seen the high competitiveness among airline companies and the various deals that we as a consumer are able to benefit from. The same methodology should be applied here. There are five airports in London, four in New York and Shanghai has two airports that too within 150 km from each other. Increasing the competition among airports will force them to charge the airline companies appropriately as there would be a price war between them. For example, a few years ago an airport was proposed in the city of Greater Noida which was within 150 km from the New Delhi airport and hence was scrapped. Incapability to handle two airports that close to each other was the reason given behind not continuing with the proposal. The two airports would have been approximately 60 km from each other, whereas in Shanghai, the two airports are only 40 km apart.
Secondly, low cost terminals for no-frills airlines have already been proposed and are now being worked upon. The Govt. has proposed fifty such airports of which five are nearing completion and four will be handed over for management to private companies in the FY15.
And hence
The first step should be to remove the private sector monopolies in airports and those which are under the public sector should be made to function efficiently. There is a need to form the right policies in pace with the change in technology. Also there should be concentration on passengers’ interests to create a winning situation for the ailing sector.
The introduction of a full service airline into the market, ‘Vistara’ is justified as the existing flyers market has matured to accept the change in domestic travel and they will be willing to spend a few bucks more for a better experience. On the other hand constructing low cost terminals for no-frills airlines will help the LCC airlines and will boost the growth rate of air traffic every year.
References:
- http://www.makeinindia.com/sector/aviation/
- http://www.ibef.org/industry/indian-aviation.aspx
- http://www.livemint.com/Politics/9BY1GqbKHKOM2Iz2Ck9MUJ/Delhi-airport-operator-GMR-appeals-against-govt-move-to-cut.html
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Beautifully written. 🙂