 "Aviation: Big airlines to fight for a pie in the sky")
This year, India emerged as one of the most promising aviation markets in the world, with three international airlines announcing investment plans here. While Abu Dhabi-based Etihad Airways sealed a Rs 2,058-crore deal for a 24 per cent stake in Jet Airways, the Tata Group made a resounding comeback in the aviation industry, forging tie-ups for two start-up airline ventures. It signed an agreement with Malaysian budget carrier AirAsia Berhad and, separately, with Singapore Airlines for a full-service carrier.
Early last week, airline grouping Star Alliance gave a go-ahead to integrate its network with state-owned Air India, while Singapore-based TigerAir tapped into the lucrative India-Southeast Asian market by entering into an interline agreement with SpiceJet, India's second-largest low-cost carrier.
Membership in the 28-member Star Alliance will ensure shared benefits to Air India, seamless travel to its passengers, usage of frequent flier points redeemable with any member airline, and global connectivity. TigerAir's alliance with SpiceJet will enable it to carry passengers from 20-odd cities in India to Singapore, via Hyderabad.
"With FDI (foreign direct investment) being allowed, the Indian aviation sector has the potential to grow 120-130 per cent, as more international carriers look to invest in domestic airlines. Therefore, there is an urgent need to have strong regional infrastructure, as foreign airlines will consider this before investing," says Ankur Bhatia, chairman of the Confederation of Indian Industries' core committee on growth potential of civil aviation & airports.
Dubey says the times are interesting, but challenging. Indian carriers lost about $1.6 billion in 2012-13. "To improve the operating environment, central and state governments need to introduce systemic reforms in ATF (aviation turbine fuel) and maintenance, repair & overhaul taxes; speed up clearances and approvals by various aviation departments; support the growth of regional no-frills airports and promote the growth of air cargo and general aviation."
The state governments of Chhattisgarh, Jharkhand, Madhya Pradesh, West Bengal and Odisha have reduced ATF taxes and it is expected Goa, Maharashtra and Karnataka will follow suit. Once that happens, the pent-up demand in India is likely to lead to a significant spurt in air traffic through the next three-four years, say experts. ATF accounts for about half of airlines' operational expenses and rationalisation of taxes on the fuel will provide relief to carriers in an environment of wafer-thin margins.
Another key demand of airlines likely to be conceded to next year is the abolition of the 5/20 rule. Currently, Indian airlines cannot fly on international routes till they have a fleet of at least 20 aircraft and have had operations for at least five years. However, no such restrictions are imposed on foreign airlines flying into India. If this practice is done away with, consultations for which are underway, it will help domestic airlines improve aircraft utilisation and, consequently, margins.
EXPECTATIONS FROM 2014
Early last week, airline grouping Star Alliance gave a go-ahead to integrate its network with state-owned Air India, while Singapore-based TigerAir tapped into the lucrative India-Southeast Asian market by entering into an interline agreement with SpiceJet, India's second-largest low-cost carrier.
Membership in the 28-member Star Alliance will ensure shared benefits to Air India, seamless travel to its passengers, usage of frequent flier points redeemable with any member airline, and global connectivity. TigerAir's alliance with SpiceJet will enable it to carry passengers from 20-odd cities in India to Singapore, via Hyderabad.
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"The biggest event in 2014 will be the commencement or expansion of commercial operations by four global airlines - Etihad, AirAsia, Singapore Airlines and Tiger Airways - and their Indian partners. This will bring in global best practices, greater competition, better choices for passengers and lower fares," says Amber Dubey, partner and head (aerospace and defence), KPMG. Dubey expects two more equity sale deals in Indian carriers in 2014, but hints at consolidation in the market.
"With FDI (foreign direct investment) being allowed, the Indian aviation sector has the potential to grow 120-130 per cent, as more international carriers look to invest in domestic airlines. Therefore, there is an urgent need to have strong regional infrastructure, as foreign airlines will consider this before investing," says Ankur Bhatia, chairman of the Confederation of Indian Industries' core committee on growth potential of civil aviation & airports.
Dubey says the times are interesting, but challenging. Indian carriers lost about $1.6 billion in 2012-13. "To improve the operating environment, central and state governments need to introduce systemic reforms in ATF (aviation turbine fuel) and maintenance, repair & overhaul taxes; speed up clearances and approvals by various aviation departments; support the growth of regional no-frills airports and promote the growth of air cargo and general aviation."
The state governments of Chhattisgarh, Jharkhand, Madhya Pradesh, West Bengal and Odisha have reduced ATF taxes and it is expected Goa, Maharashtra and Karnataka will follow suit. Once that happens, the pent-up demand in India is likely to lead to a significant spurt in air traffic through the next three-four years, say experts. ATF accounts for about half of airlines' operational expenses and rationalisation of taxes on the fuel will provide relief to carriers in an environment of wafer-thin margins.
Another key demand of airlines likely to be conceded to next year is the abolition of the 5/20 rule. Currently, Indian airlines cannot fly on international routes till they have a fleet of at least 20 aircraft and have had operations for at least five years. However, no such restrictions are imposed on foreign airlines flying into India. If this practice is done away with, consultations for which are underway, it will help domestic airlines improve aircraft utilisation and, consequently, margins.
EXPECTATIONS FROM 2014
- Fares expected to come down in the domestic sector with Tata-SIA and AirAsia set to start operations
- Connectivity to West Asia and South-East Asia to improve, due to alliances between Jet-Etihad and SpiceJet-TigerAir
- Air India's induction into the 28-member Star Alliance for seamless services to passengers from India on extensive international routes
- Airlines in India expected to see a more sustainable operating environment with government considering abolishing the 5/20 rule which restricts domestic carriers from starting international operations in initial years. Move will help in improving aircraft utilisation and help better margins
- States is talks to rationalise taxes on jet fuel. ATF costs currently account for nearly half of an airline's operating expenses