The aviation industry was going through a tumultuous time and was expected to remain so, at least in the short-term, believed stakeholders. They concurred on the need for finding ways to turn the ongoing profitless growth into a more sustainable, profitable growth. Excerpts from a panel discussion at ICONIC TOURISM FORUM held recently in the capital.
Numerous think-tanks have forecasted that the Indian aviation industry would grow to unheard proportions in the next decade. Much of this growth is expected to be at the back of a fast-expanding inventory – over a thousand aircraft are on order and will join operations in the next decade – and a swelling passenger count. Government’s own intervention, with schemes such as UDAN, have created new markets, hitherto untouched.
A major conundrum for many insiders has been the industry’s inability in driving financial growth, at a time when passenger count is growing at a pulsating rate. Wolfgang Will, Director – South Asia, Lufthansa suggested that the industry’s inability “truly baffled” him. He noted that airfares had not grown commensurate with the growth in passenger count. “Today, you pay less airfare, inflation-adjusted, than what you did ten years ago. While the customer gets a much better product, and I am talking about both domestic and international,” he said.
There are other churnings too. Fuel prices have headed north, forcing carriers to rejig their strategies. In another potentially game-changing development, LCCs are gearing up to fly long-haul routes, posing a threat to FSCs and their dominance on international routes. Ryanair and IndiGo would soon ferry passengers to Europe and a later date to the USA. Wolfgang Will called it an “interesting development”, insisting that the impact of these changes needed to be assessed. “I believe that there is business for all,” he asserted.
Reflecting on policies, hindering growth, he argued that airlines needed to pay tax on ATF in India which was not the global norm. “It is not the standard in the world; international operations are excluded,” he said. He noted that there was a lurking temptation to regulate the aviation business to a larger degree than other sectors. He suggested that he was all in favour of regulation in areas such as safety of passengers etc.
The recent spurt in oil prices and red in the ledger have made life difficult for airline operators. However, Kapil Kaul believed that the industry needed to take stock of the macro picture of the aviation sector, instead of focusing on the short-term financial health of air carriers, as had been the case in the past few weeks. He commented that the industry needed to consider the possibilities emanating in the medium and long-term for better aligning to changing business dynamics. He shared that the domestic passenger count was expected to swell to four and a half times, touching 650 million in the next fifteen years. International numbers too were forecasted to cross the 200 million count, he said, stressing that these numbers were deliberately calculated in a conservative manner, owing to the sheer scale of the growth projection.
He mentioned that the aviation sector was amid an exceptional growth cycle, albeit a “profitless one”. It was crucial for the sector to decipher the reasons behind the profitless growth, turning it into a profitable one, he suggested.
Taking stock of the challenges facing the industry, he mentioned that the availability of critical infrastructure, skilled workforce to match the growth, and conducive regulatory framework were major issues, needing utmost attention from all stakeholders.
Sanjiv Kapoor, Chief Strategy and Commercial officer, Vistara asserted that the long-term growth of the Indian aviation sector was “unquestioned” as merely three percent of India’s population had yet taken to the skies. Sharing the gap between Chinese and Indian capacities, he noted that the top two Chinese carriers boasted of the same number of aircraft as the total number of operational aircraft in India.
He too mentioned that while the long-term growth prospects remained intact, the “worry was the medium-term outlook”, especially the next five years. “There has been a lot of capacity enhancement which is causing stress in the market. The next five years would be very challenging,” he added. He also lauded the government, stressing that it was aware of the challenges, and had been taking pro-active measures to address the emerging challenge.
He mentioned that the focus needed to be on expanding the capacities of the main aviation hubs, as a high degree of movement, the world over, was being channelled through key metro city hubs.
Suresh Nair, Country Manager, Air Asia conceded that he was more concerned with international operations in the present times but noted that there was immense potential in the domestic market. “There is business, if you have the right price-point and the right product,” he said.
Reflecting on the fast chocking airport infra, he quipped that ‘jugaad’ was the only way out, as air carriers would soon need to deploy valet parking at airports.