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India’s airlines, more than the rest of the world,
suffered severe losses with massive deliveries
of aircraft and falling yields following the economic
slowdown.
Hope seems to be on hand as airlines start to
narrow losses and come close to returning to 2007
figures. According to a survey carried out by
the International Air Transport Association (IATA),
airline business confidence was up, though it
did not necessarily mean a return to profit.
The Centre for Asia Pacific Aviation (CAPA),
a Sydney-based consulting firm, also estimates
a 15% increase in passenger volume this year.
IATA had earlier predicted that airline net losses
will halve from $11 billion in 2009 to $5.6 billion
in 2010. In the four years to March 2010, CAPA
estimates Indian carriers will have accumulated
operational losses of in excess of INR260 billion,
of which the three large airline groups (Air India,
Jet Airways and Kingfisher Airlines) account for
almost INR230 billion.
It says losses for the current financial year
will be around INR 65 - 70 billion. Although it
might take longer to get over total accumulated
losses, India’s private domestic airlines are
expected to make a combined profit of $250million
by the end of the fiscal year ending in March
2011, says a recent report by CAPA.
India is starting to see a more favourable environment
as the economy appears to be recovering earlier
than expected, with GDP growth of 7.9% in the
last quarter, ahead of expectations. The World
Bank projects an annual growth of 8% per annum
from 2011 to 2014, says Kapil Kaul CEO, Indian
subcontinent & Middle East, CAPA.
Domestic traffic is bouncing back to previous
levels though yields continue to take a beating.
The country’s major airlines – SpiceJet, Kingfisher
Airlines and Jet Airways released their quarterly
earnings for three months ending December 2009.
 Jet
Airways led in market share at 26.9% for the main
line carrier and JetLite combined. It posted a
profit of $23 million, up 149% from the same period
last year. Kingfisher Airlines captured a market
share of 20.8% and recorded a loss of $91 million
widened by a marginal loss of 2%, compared with
the third quarter of fiscal 2008. SpiceJet garnered
a market share of 12.9% and registered a net profit
of $24 million, up from a net loss of $3.8 million
in the same quarter year-ago period.
The decrease in fuel prices helped operating
profits. For the three months ending in December,
airlines spent nearly 32%-33% of operating revenues
on fuel. Last year, the companies had spent about
38%- 48% of operating revenues on fuel.
The profitable and privately owned airline, budget
carrier Indigo, is expected to have a higher profit
(around $17.6 million in 2009) than in previous
years. The carrier is said to have the best on-time
performance record — 82% for the year.
Even national carrier Air India, which releases
limited financials and operating metrics, posted
a net loss of $318 million, a 9.7% improvement
from the October-December quarter in 2008.
The rise in traffic to 43.8 million passengers
carried last year on Indian carriers, was up from
42.8 million in 2007, contributed to the improving
financial state of the three listed Indian airlines.
They benefited from an increase in passenger traffic
in the December quarter as well.
Year-on-year, Kingfisher flew 2.74 million passengers,
an increase of 4%, while Jet Airways carried 3.41
million passengers, a growth of 33%. SpiceJet’s
passenger traffic also reached 1.5 million during
this year’s fiscal third quarter from nearly 1
million in the year-ago period. Air India posted
a 24.8% year-over-year increase in passenger numbers
to 3.17 million and a 14.4-point surge in load
factor to 69.7%.
Airports
Reduction in traffic in the past year leading
to delayed fund raising has slowed down the government’s
plan to upgrade and modernize 35 nonmetro airports.
It is now expected that work on 8-9 airports will
be completed by March 2010, and an additional
4-5 airports by the end of 2010. The target is
to upgrade all 35 airports by 2012, according
to Praful Patel Minister of Civil Aviation, answering
a query in Rajya Sabha.
It was recently decided that terminal and cargo
operations will be retained by the Airports Authority
of India and landside development will be opened
to external parties. Tender documents for ten
of these non-metro airports are expected to be
issued shortly.
The government has also given an ‘inprinciple’
approval for setting up new Greenfield airports
at Navi Mumbai, Sindhudurg in Maharashtra, Mopa
in Goa, Bijapur, Simoga, Hassan and Gulbarga in
Karnataka, Pakyong in Sikkim, Durgapur in West
Bengal and Datia/Gwalior in Madhya Pradesh.
Airports Authority of India (AAI) plans to incur
expenditure of Rs.12434 crores for modernisation
of airports and air traffic services across the
country during XIth Five Year Plan period (2007-2012).Two
Greenfield Airports each at Bangalore and Hyderabad
with an investment of Rs. 2400 Crores and Rs.
2920 crores have been made operational in 2008
under Public Private Partnership. Besides, development
of IGI Airport, New Delhi and CSI Airport, Mumbai
with estimated cost of Rs. 8975 crores and Rs.
9802 crores respectively has been undertaken under
PPP.
Air Traffic Control
The Airports Authority of India manages one of
the largest airspaces in the world, including
a large oceanic component - a total of 6 million
square kilometres.
Fast growth in traffic over the last five years
has led to serious air congestion. The AAI has
been investing in increased automation and improved
ground infrastructure, although several hundred
million dollars of further equipment is required
to upgrade India’s CNS/ ATC systems, says CAPA.
In addition to the planned induction of the
satellite-based system GAGAN, AAI will initially
have a VSAT network covering 8 major airports,
which will be extended to all airports progressively.
Separately, the AAI has connected 80 airports
in the country through the digital satellite communication
network, to prevent a failure of voice communication
systems between pilots and the ATC.
A key challenge remains a shortage of air traffic
controllers. As of October 2009, India had 1640
controllers against a sanctioned strength of 2162.
Compensation packages for controllers may therefore
need to be reviewed if these continuing shortages
are to be addressed, says CAPA. Also training
will be the key.
General Aviation
 The
explosive growth in 2005- 06 driven by economic
growth followed by an economic slowdown, has affected
the business aviation segment. General aviation
continues to be a neglected sector of Indian aviation
industry. “
General aviation cannot be wished away. It will
always be required especially when commercial
carriers are going through tough times,” says
Madan Thadani, the new president of the Business
Aviation Association for India (BAAI).
A BAAI study done earlier in the year says there
are 490 general aviation aircraft in India.With
24 billionaires in India according to Forbes in
2007, millionaires in India grew by about 23%
last year. But the downturn has resulted in fewer
sales. While 2006 saw applications for import
of 300 GA aircraft with 100 cleared in 2008, the
outlook is somber for the moment. BAAI expects
major business houses, medium (and some small)
companies and High Net worth Individuals (HNI’s)
to become aircraft owners or look at charters.
Hurdles to growth include lack of infrastructure
such as parking bays. Skies are overcrowded and
air traffic control needs major improvement in
terms of training and technology. “Regional connectivity
is poor and regional hubs need to be created,”
says BAAI vice president Karan Singh.
Most of the smaller airports lack basic facilities
like VOR/ILS approaches and are at best fit only
for VFR flights.
Import duties of around 16.5% are weighing private
operators down who have to pay duty for importing
spares. “It is difficult to convince the government
as private planes are not looked at a public cause,”
adds Thadani.
A key driver will be the availability of helipads
and landing facilities. The new greenfield airport
policy announced in April 2008, included a streamlined
process for approval of new private airports and
helipads.
“With the Indian economy set for strong and sustained
long term growth, we can expect to see the general
aviation sector in India undergoing a dramatic
transformation in a very short period of time,
though key challenges remain,” says Kaul.
Maintenance, Repair and
Overhaul (MRO)
The MRO sector has been held back in part by
a negative taxation structure, an absence of high
quality training institutions to develop the skills
base and deferment of fleet plans of carriers
and a reduction in capacity.
The prohibitive costs of getting the aircraft
serviced outside the country, due to the absence
of domestic service providers, are eating into
airlines’ profits, says a Frost & Sullivan report.
Labour costs in India are around $30 to $35 per
man-hour, compared to $55 to $60 in Southeast
Asia and Middle East. “Therefore, India has the
potential to service not just Indian aircraft
but also those from neighboring regions,” says
Frost.
The report notes that growth rates for the various
services in the maintenance cycle are positive
and MRO service requirements in the country are
expected to grow at a compound annual growth rate
(CAGR) of 13.5 percent between 2009 and 2015.
“Airlines will also be keen to know the MRO’s
operating/service structure; therefore, the strategy
for MROs will be to identify the key segments
of the MRO value chain and address the needs of
the current fleet and expected fleet additions,”
says Frost.
Investment in Airports Security
Countries in South Asia are paying increasing
attention to security related procurement as they
face growing pressure to comply with international
security standards and regulations. Aviation security
regulations are becoming more stringent, forcing
airports to upgrade their security systems with
a view to meeting global standards. Those seeking
to invest in India’s airport security equipment
market can look forward to bright prospects
. India is expected to become one of the major
civil security or homeland security markets in
the world with expected cumulative spends of about
$10 billion by 2017, according to a Frost & Sullivan
study.
Homeland security concept came in the limelight
after the Mumbai incident of 9/11 “Airports, mass
transportation and maritime security are expected
to be biggest verticals under growing homeland
security market in India,” says Ratan Shrivastava,
Director-Aerospace & Defense, South Asia and Middle
East.
“The presence of Indian Coast Guard along the
country’s coastline is expected to involve the
installation of approximately another 20 coast
guard stations, along with all the relevant systems,
technologies and equipment. Similarly the modernisation
and up gradation of current airports, in addition
to the planned construction of over 35 new airports
around the country, is expected to dramatically
increase the amount being spent on airport security,”
Shrivastava said.
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