Skies might open up

Last Updated: Tue, Jan 01, 2013 19:31 hrs

Year 2012 was a lacklustre one for the aviation industry. For one, the sector witnessed a drastic fall in traffic, up to 15 per cent, even during the festive season. The year was also marked by some dramatic developments: While debt-ridden state carrier Air India got a new lease of life with the turnround action plan and equity infusion of Rs 30,000 crore over a period till 2021, private carrier Kingfisher Airlines (KFA) found its flying permit getting suspended and eventually getting expired.

As KFA’s services were curtailed, leading to total disruption of flights in October 2012, other airlines filled up the gap, but the air fares shot up by around 30-40 per cent.

The revival plan by KFA could not convince the Directorate General of Civil Aviation (DGCA) or Civil Aviation Minister Ajit Singh. The plan was silent on the payment of dues to vendors (airport operators, oil companies, etc.) and the minister raised doubts if the UB Group had committed to funding of Rs 652 crore to KFA. While the airline’s licence has lapsed, according to rules, it can reapply within two years.

Year 2013, according to aviation experts, will be sunny for the industry, with an expected rise in traffic. The aviation ministry is also forming an “air-fare monitoring cell”, which will see if the airlines are conforming to their fare price band. Also, the ministry will be pursuing all domestic airlines to lower the cap on highest bucket fare, the civil aviation minister had told Business Standard two weeks ago.

The ministry has tried to address the structural concerns of the sector in 2012. With the government agreeing to include aviation turbine fuel (ATF) in notified commodity, fuel costs are likely to drop. ATF costs contribute to 40-50 per cent of airlines’ input cost, hence ticket prices in India are likely to come down. Further, with the Cabinet’s approval of 49 per cent foreign direct investment (FDI), the Indian aviation sector is capable of growing at 120-130 per cent as more international carriers will look to invest in domestic airlines, according to experts.

The Jet Airways-Etihad deal is on the cards, as there are talks between these carriers for a stake sale, says a government source.

Ankur Bhatia, executive director, Bird Group and chairman of CII’s Core Committee on Growth Potential of Civil Aviation & Airports, says, “The downfall of Kingfisher Airlines has left a negative impact on the Indian aviation industry. Additionally, the increasing oil prices, decline in passenger traffic and liquidity constraints have completely jeopardised the economies of some airlines and continue to strain and drain their limited financial resources.”

To address concerns about the operating viability of Indian carriers, the government has initiated a series of measures including FDI in aviation, direct import of ATF, lifting the freeze on international expansions of private airlines and financial assistance to the national carrier, he adds.

Amber Dubey, partner and head (aviation) at KPMG, says: “Overall, 2012 has been a mixed bag with long-term reforms and medium-term pain. Radical reforms are undertaken in areas like sales tax on ATF, promotion of tier-2/3 airports, time-bound implementation of airport projects in Navi Mumbai, Goa, Agra, etc., allowing seat trading for meeting route dispersal guidelines.”

Air India received its first delivery of Dreamliner last year. Aviation experts believe that now the airlines would be able to match the right kind of routes with right kind of planes. With its losses coming down and getting a market share of around 20 per cent, Air India seems to be picking up.

For India, with an air travel penetration of just 48 trips per 1,000 individuals, steadily growing economy and rising aspirations, the long-term outlook remains positive as the government is also focusing on regional connectivity for tier-3 and tier-4 cities.

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