India’s airline industry is going through its worst phase in the last three years. Faced by a huge slowdown in demand, airlines have cut down domestic capacity and redone strategies for international operations, all of which has had an effect on their aircraft orders and deliveries, especially for US aircraft manufacturer Airbus which has a 70 per cent share of the total order book of Indian carriers. Kiran Rao, executive vice-president, marketing and contracts, Airbus, talks to Anirban Chowdhury and Surajeet Das Gupta about the challenges the industry faces, and the way forward.
Indian airlines are looking at cutting down capacity and deferring aircraft deliveries. Given the current crisis, primarily fuelled by aviation turbine fuel prices, how do you read the Indian aviation market?
If we go back in time, and look at the US and south-east Asian markets, it has never been a linear curve. All markets change, and what we at Airbus have to do is react to those changes.
I do not think we have overestimated the Indian market. If you look at the aviation market and how it was in 1991, you see a little blip, and then you see those little blips during the Gulf War and SARS. But in the long term you see a straight line. If we sit on those little blips, we would think that the world is coming to an end. But over a period of time, if you look back, all those crises just end up as little blips. Thus, even this fuel crisis will end up as a small blip.
The slowdown seems to have affected the Indian low cost carriers more than others. Do you think the low-cost carriers (LCC) model in India has failed?
No, I do not think so think so. However, LCCs in India are not the same as LCCs in the US or Europe. Also, India does not lend itself to the exact internationally accepted LCC model.
International LCCs make a lot of savings on heads like airport charges. When a Ryan Air flight flies from London to Toulouse, it lands at an airport called Carcassone which is outside Toulouse. Airports like these are designed, in terms of infrastructure and charges, for LCCs and do not entail frills. The passenger disembarks from the plane, rents a car and leaves. So there are savings on the airport charges.
Also, while the average short haul sector in Europe is an hour, it is about an hour and half in India. So passengers need some food and beverages in the flight. The fact that you have to have the equipment ready before the flight affects the turnaround time.
Thirdly, there is also a lot of congestion at the Indian airports. While the turnaround time in an airport like Stanstead is 20 minutes, it is much more in India and hence the flight schedules here cannot cope with the high levels of aircraft utilisation. Average utilisation of aircraft in other countries is two hours more than in India and six per cent of an airline’s savings come out of utilisation itself.
For all these reasons, Indian carriers would save 10 per cent less than international carriers and that is adjusted in the fares.
How have your delivery schedules been affected due to the deferment of deliveries and cancellations of orders?
There have been no cancellations of orders from any airline. We are delivering all the 48 aircraft we were supposed to deliver this year. We will cut it a little next year. So we deliver around 40 aircraft instead of the earlier expected 54, but that is due to the Kingfisher-Deccan merger. When the two carriers merged, Dr (Vijay) Mallya saw that the combined delivery schedules was such that they got as many as three aircraft in one month, sometimes. Not even the largest airline in the world takes such a big delivery in a month.
All we have done after the Kingfisher-Deccan merger is that we have looked at a better flow of aeroplanes and found a better match of deliveries according to what the airline can take. It is readjusted so that instead of getting all the deliveries between now and 2012, the schedule will now be stretched to 2014.
Why has Airbus not come up with its market forecast for 2008 — Boeing is already out with it?
We are saving our market outlook for the Hyderabad airshow. All we can say is that the outlook is more or less in line with what we projected last year. This is a short-term crisis and we will be selling more aircraft by 2010.
And even as we sit here discussing delay in aircraft deliveries, there are customers in the Indian market who have asked us to advance aircraft deliveries. Only yesterday, I had a discussion with an airline which wants its aircraft in 2009 instead of 2011.
For instance, there are situations where the second batch of the A340 aircraft are not going to be as urgent as the batch of A330s. So the airline would advance some of them and delay some of the others. A demand to switch to the A321 from the A320 is increasing overtime. For the Gulf and south-east Asian markets, an A321 is more suitable than the A330s.
However, A330s are going to be the absolute optimum aeroplane for the international routes out of india. That is because an airline can operate it from Delhi to Mumbai, or it can be flown from Delhi to Dubai or to London and then to Los Angeles. Airlines in India would prefer that flexibility, even if it means sacrificing the non-stop flight advantage that an A340 can give it. An airline cannot use an A340 from here to Mumbai as it would not make economic sense.
As for Boeing, we have been talking about a demand for a thousand aircraft since the last three years. Boeing started with 200 and then it went up to 400 and then 600. Their last number was very easy to remember because it was so ominous. It was 911.
What about the delay in the A380 aircraft.
The A380 delay is an old story. We are into full production of the aircraft now. The first ones have been delivered. We have had our discussions with Kingfisher about the A380. We all know what dates the deliveries are on and everyone is happy about it.
The delays we have to worry about today are the Boeing 787 Dreamliners. It has already been a year since they rolled the aircraft out and it still has not flown.
