|
Before the budget was presented, the outlook
was quite rosy for the industry which had been
making big plans for fleet and route expansion
along with going on a hiring spree. The 2010-11
budget proposals, however, have led to an increase
in aviation turbine fuel prices owing to imposition
of customs and excise duties on imported crude
oil and petroleum products.
In addition, service tax will now be levied
on airlines passengers. In the present scenario,
it looks difficult for airline companies to absorb
this level of taxation and it may have to be passed
on to consumers in the form of a hike in air fares.
This will, in turn have an impact on the volume
of air passenger traffic and ultimately once again
affect the profitability of the India’s airlines
sector.
The annual Economic Survey presented just before
the budget highlighted the improved performance
of the aviation industry. It said the civil aviation
sector had shown signs of slowdown in passenger
traffic during 2008 due to the steep rise in fuel
coupled with the impact of global economic slowdown.
The survey pointed to the fact that signs of recovery
had become visible in the second half of 2009
with scheduled domestic passenger traffic having
gone up from 40.8 million in 2008 to 43.3 million
in 2009. On the other hand, it noted that cargo
traffic remained in doldrums and showed almost
no growth.
The survey accurately observed that the airline
industry appeared to be looking up after the crisis
in the latter half of 2008.
It was at this time that large scale retrenchments
by major companies like Jet Airways had created
a hue and cry in the country. The scale of revival
is indicated by official traffic data released
recently showing that domestic passenger traffic
increased by as much as 23 per cent in January
this year compared to the same period last year.
Jet Airways and its subsidiary Jet Lite had the
highest number of passengers at 10.28 lakhs but
among the budget airlines, IndiGo was the leader
with 6.25 lakh passengers. The Jet Airways – Jet
Lite group now has 25.4 per cent of the market
followed by Kingfisher at 22.2 per and Air India
at 18 per cent.
The “no frills” airlines continue to do well
and their combined market share is a substantial
34.7 per cent. In fact, these airlines have been
looking to go on a hiring spree to their expanding
fleet’s requirements. IndiGo, for instance, is
reported to be considering hiring as many as 1000
personnel including 100 pilots, 400 cabin crew
and other passenger service staff.
Its fleet of 24 aircraft is set to rise to 40
by the end of 2011. Similarly, SpiceJet’s fleet
will also go up from 19 to 28 and it needs staff
for its new inductions.
At the same time, industry insiders point out
that the hiring will not really create any new
jobs. Most of these airlines had hired many new
personnel in 2006 and 2007 but had to keep a large
number of these appointments on hold in 2008 after
the recession struck the economy. Many pilots
who had originally been hired by these companies
were either retrenched or their employment was
kept in abeyance. They will now actually be given
flying jobs.
Thus prospects for fresh pilot recruitment appear
slim for the time being.
The concerns about profitability of larger carriers
like Air India and Kingfisher also continue as
their bottomlines are under threat. Air India
is having to bear the burden of enormous losses
that would have pushed any private airline to
close down but governmental support is propping
up this behemoth. This artificial respiration
cannot continue for all time.
Even though Air India is the national carrier,
there is increasingly a feeling that the airline
must revamp and restructure or be allowed to sink
or swim on its own.
The latest reports for 2009-10 indicate, however,
that Air India which merged with the domestic
carrier Indian Airlines in 2007, has shown a decline
in operating losses. Going by pulished reports,
these have declined by Rs 1300 crore during the
financial year owing to a 14 per cent rise in
passenger traffic. The airline’s load factor also
rose to 64.5 per cent as compared to 58.5 per
cent during the previous year.
Air India still has a long way to go as the total
losses of the entity are estimated at around Rs
5400 crore. The government has assured funds for
restructuring the National Aviation Company of
India Limited (NACIL), as it is now called, but
this will have to be accompanied by efforts to
cut costs by the airline itself. The budgetary
support will be in the form of equity infusion
and the first tranche of Rs 400 crore was to be
given earlier this year. The 2010-11 budget proposals
also envisage an outlay of Rs 1200 crore for financial
restructuring of NACIL.
As for Kingfisher, it is clear that owner MrVijay
Mallya has overstretched himself by going ahead
with huge investments for fleet expansion along
with launching international routes that are not
fetching much revenue for the time being. At the
same time, losses have dipped during 2009-10 and
the seat load factor has gone up, indicating that
measures taken to improve efficiency have actually
had a positive impact on its bottomline.
Jet Airways has also shown improved performance
as it finally recorded a profit in the third quarter
of 2009-10, largely due to massive cuts in expenditure.
Its low cost subsidiary, JetLite also posted a
small profit and seems to have finally turned
the corner.
The fortunes of the Indian civil aviation industry,
however, will now hinge on the impact of the higher
air fares on consumers.
Civil Aviation Minister Praful Patel has assured
that he will be talking to Finance Minister Pranab
Mukherjee about the extension of the service tax
to air passengers. But the prospects of a rollback
in the tax appear dim, as Mr Mukherjee has highlighted
the fact that the services sector now occupies
a large share of the growth in GDP but a minuscule
share of taxation.
Similarly, the imposition of import duty on crude
oil and excise duties on oil products is not likely
to rolled back. Both these levies are likely to
be passed on in the form of higher air fares of
passengers. It now has to be seen how this will
impact air passenger traffic which had risen significantly
in 2009.
Despite all these negative elements, the aviation
industry looks set to be on an upward growth path.
All the major aircraft manufacturers attended
the recent India Aviation 2010 show in Hyderabad.
Boeing, EADS Airbus, Bell Helicopters, Bombardier,
Eurocopter or Gulfstream, they were all there
to make sure that they had a share of the Indian
pie.
This country is now projected to be one of the
fastest growing aviation markets in the world
with a demand of over 1000 aircraft over the next
20 years. According to Boeing officials, Asia
Pacific is the largest market with 8960 planes.
And within this region, they say India is the
fastest growing with a projected requirement of
over 1000 planes estimated to cost US $100 billion
by 2028 owing to its fast growth rate, rising
middle class and increasing disposable incomes.
The total domestic passenger traffic is expected
to reach 48 million during 2010 from 43.3 million
in 2009.
Airbus is also bullish about India. Company officials
say the demand in this country is 1038 aircraft
worth $138 billion, which will be the world’s
fifth biggest.
Boeing also plans to set up an MRO (maintenance,
repair and overhaul) facility at Nagpur where
it has acquired 50 acres in a special economic
zone for this purpose. Eurocopter, part of the
EADS group has also announced plans to set up
MRO facilities in Mumbai and Delhi.
In other words, the medium and long term outlook
for the Indian civil aviation industry is certainly
heartening as it looks to be on a high growth
path.
As for the short term, however, there are many
areas of concern especially the need for domestic
airlines to come on even keel financially. The
budget carriers appear to be on a better wicket
right now and there are even predictions being
made that the entire industry will soon comprise
entirely of low cost airlines. It is thus time
for the higher fliers like Air India and Kingfisher
to tighten their belts to ensure that they move
towards a situation where profitability can be
sustained in the long run.
|
