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Weakening headwinds

Air travel is growing at a record clip. Most airlines are losing less than they were last year. Airport projects are heading to completion. Will 2010 be the turnaround year for aviation?

Kushan Mitra | Print Edition: April 18, 2010

January and February saw airline passenger numbers grow substantially over the same months of 2009 and even topped the figures for the first quarter of last year. But the really good news for the industry was that passenger numbers grew substantially over the first two months of 2008, a record year in Indian aviation.

Cheers for the aviation industry? It isn't that simple and airline companies have a long way to go before they come out of the dark clouds they are in. Indian carriers such as Air India, Jet Airways and Kingfisher Airlines still have to deal with the massive losses of 2009, estimated by industry body International Air Transport Association at over $2 billion—a third of what the industry lost globally.

Air India is still in dire financial shape and talk of increasing the bailout the government is putting together is becoming louder. It is still unclear how any rescue package will work for the airline unless it deals with big expenses such as a big workforce or interest charges on new planes. Jet Airways has been forced to rethink its domestic strategy, converting up to two-thirds of its capacity to its no-frills service, Jet Konnect. It has also leased out at least seven of its dozen large Boeing 777-300ER planes, even selling one to an emirate in the UAE.

Kingfisher Airlines, saddled with Rs 7,400 crore of debt, has had to pare back growth, choosing not to take delivery of its long-haul Airbus A340-500 aircraft, which were originally planned to fly routes such as Bangalore-San Francisco, and returning even some of their leased shorthaul A320 planes. In the process, its image took a knock when it was taken to court by GE Capital Aviation Services, a leading lessor of planes.

But, this is good news for smaller, low-cost airlines. Carriers such as IndiGo have rushed to take advantage of the needs of thrift-conscious customers and pared capacity on some routes. IndiGo, the country's fourthlargest airline today with a 15 per cent share of the market, recently took delivery of its 25th aircraft and President Aditya Ghosh told Business Today that the airline would be adding nine aircraft before 2010 was over and also hiring around 1,000 people. Sure, this is slower from its earlier expansion plans but IndiGo—together with rival SpiceJet—makes for the contrarian in a market full of belttightening airlines.

With growth coming back to the domestic airline market, the prediction for the long term has suddenly turned bright. Even Kingfisher's woes seem to be ending with the airline planning to almost double its fleet size by 2016 to 128 aircraft, according to a company presentation. The airline's plans are that these aircraft, which will start getting inducted by 2012, will allow the airline to bolster its international operations. Already, Kingfisher is adding several international services, including Delhi-London, Delhi-Hong Kong, Delhi-Bangkok and Delhi-Dubai.

Archrival Jet Airways, which cut back services on some overseas routes in the downturn, is also adding new frequencies outside India. For the first time in nine months, the Naresh Goyal-chaired airline reported net profits in the December 2009 quarter, helped by operating profits from international operations.

Both Jet and Kingfisher will run into established international carriers Singapore Airlines and Lufthansa AG at the expensive end of the market and others like Malaysian low-cost operator Air Asia for business from customers preferring low-priced tickets. Ahead of the 2010 summer, these airlines are offering two-way tickets for as less as Rs 29,000 to London from Delhi and Rs 11,000 from Delhi to Kuala Lumpur.

The signs of revival in the air are, however, yet to get reflected on the ground. India's aviation infrastructure— read: airports and handling of flights, passengers and cargo—has not managed to keep pace with growth even though the situation is far better than the 2006-2008 years when it was not unusual for a plane to circle over Delhi and Mumbai waiting for its turn to land because the airports on the ground couldn't handle more than 35 flights an hour. Today, Delhi's Indira Gandhi International Airport is capable of handling a flight almost every minute, still behind Heathrow's two-aminute or Atlanta's four-a-minute traffic, but that's still a big improvement.

Mumbai's Chatrapati Shivaji International Airport recently finished resurfacing its runways, allowing it to expand services. The country's biggest aviation infrastructure project, the Rs 9,000-crore modernisation of the Delhi Airport, including a new runway and a new 48-gate terminal, are getting ready to be inaugurated, tentatively early-July, according to Kiran Grandhi, Managing Director, Delhi International Airport Ltd. The bigger problem, says the head of a Delhi-based corporate looking to launch a regional airline, is with airports in smaller cities and towns.

"There is no way to fly from Lucknow to Dehra Dun, for example, or if you are a tourist in Rajasthan, you cannot get from Jaipur to Udaipur," says Ankur Bhatia, Executive Director, Bird Group. Better aviation infrastructure in India's Tier-II and III cities, argues IndiGo's Ghosh, can boost traffic. "If the airport experience is good, people should want to fly more," he says, predicting that the potential growth in the aviation sector will come from Tier-II cities and adding that IndiGo plans to add flights to smaller towns.

Better airports in smaller cities is a goal high on the agenda of Civil Aviation Minister Praful Patel, who points out that modernisation at airports like Ahmedabad is nearing completion. Work is also on at 35 nonmetro airports, and 12 new airports, including at Durgapur and Ludhiana, which have been given the go-ahead. If 2009 went down as a year of red ink and tears, India's aviation fraternity is hoping that 2010 will signal a revival of their fortunes. With consumers spending more on travel, airline fleets trimmed to optimal capacities and better airports on the horizon, the industry might just get its wish.

FLYING BACK IN VOGUE

  • Some 8.05 million passengers flew in first two months of 2010 alone, one-fifth more than the same period last year.
  • More than two-thirds of airline capacity today is in the no-frills category, up from 40-50 per cent late in 2008.
  • Airlines are talking expansion again: Indigo is expanding its fleet more than a third in 2010, Kingfisher plans to double fleet to 128 aircraft by 2016.
  • New international carriers such as Air Asia are drastically driving down fares to South East Asia.
  • Airport modernisation in Delhi, Ahmedabad near completion this year.
  • 12 new airports projects approved across India, including at Durgapur and Ludhiana.

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