Airlines enjoy premium bonanza

Softening premium rates in the insurance market have come as a huge bonanza for airlines in India.

Jet Airways, for example, has been able to maintain its premium outgo at $8 million even though its exposure has doubled to $1 billion in terms of liability cover.

"There has been some reduction in premium rates as global markets have softened by about 18 to 20 per cent," said M Ramadoss, chairman-cum-managing director, The Oriental Insurance Company.

Air-India, whose fleet size is much larger than either Jet or Indian Airlines, is also expected to renew its risk cover at a much lower premium than last year.

A-I had renewed the cover of its $2.65 billion fleet for $12 million in 2004.

"Much depends on the claim experience of individual airlines. A-I has a very good experience over the last few years,' said R Beri, chairman and managing director, The New India Assurance Company.

Insurance industry sources said Jet had also benefited from the fact that its average fleet age is less than five years. Apart from domestic destinations, Jet is currently flying to Singapore, Nepal and Sri Lanka and will shortly commence services to the UK.

Once it flies to the US, its liability exposure will rise further to $1.5 billion. Further, the domestic carrier has placed orders to acquire 17 Boeing 737-800 aircraft over the next two years.

While Aviation Minister Praful Patel expects the industry to see a 20 per cent growth year on year, Beri does not expect this to be reflected in the total premium income for the insurance sector as global premium rates have decreased.

"Asia, especially China and India, have experienced sizeable growth largely with the increase in low-cost carriers,' said Steven Doyle, global manager (aviation & aerospace) Global Practice Group, AON Global.

The Asian region accounts for the second largest credit balance and is close behind Europe in terms of premium contribution with less than two-thirds of the renewals, stated Aon in its year end aviation report.

In the next 20 years, the global airline industry is expected to fly over 17,000 new passengers and cargo aircraft. This means adding about 866 aircraft every year.

The Indian airline industry is expected to see tremendous growth as new airline companies set up shop and existing domestic players commence operations overseas.

Aside from Jet and Sahara commencing flights overseas, Air India will be expanding its fleet size by an additional 50 aircraft.

Similarly, three new low-cost carriers have set up shops "" Deccan, Air India Express and Kingfisher""and more are waiting in the wings.