IATA advocates desperate need for a wholistic vision for Indian aviation

At an industry gathering in India’s capital New Delhi, IATA’s Director General and CEO Giovanni Bisignani advocated what most aviation analysts in India have been saying all along — there is a desperate need for a comprehensive approach in Indian aviation, with a common vision by all involved.

While most would latch on the the chest-thumping statement of Bisignani

“If Indians flew as much as Americans, it would be a market of over 4 billion passengers. With the spending power of Indians set to triple over the next two years, the potential for growth is incredible,”

the simple fact is that the Indian aviation sector is minuscule compared to most airlines, even in the neighbourhood, this is despite the fact that India has a huge potential domestic market, currently at 42 million annual passengers domestic and 34 million international.

As an example the two largest Indian carriers, Air India in the government sector, and Jet Airways in the private sector, have annual revenues below $2.5 billion each. Compare this to the Thai Airways, from a nation that is the size of just one state in India, which has an annual revenue of above $4.8 billion. If one extends this, the total combined revenues of all Indian carriers would still be below that of the $8.9 billion Singapore Airlines, from the tiny island state.

See Flightglobal’s excellent world airline revenue map.

A key reason for this under performance is the narrow minder approach of each stake-holder in the Indian aviation market. Government, regulators, airport operators, airlines, ground handling, air traffic control, each push for special dispensations and policies to maximise their benefits while trying to put down others.

The net result is that despite IATA’s upgraded global forecast for a profit of $8.9 billion in 2010, the Indian aviation sector as a whole is still expected to post a loss of $400 million while carrying a crushing debt burden of $13 billion.

Bisignani summed it up accurately

“In a market as rich in potential as India, the precarious financial situation indicates that structural weaknesses must be dealt with,”

Bisignani highlighted key areas requiring special attention, but let us keep in mind IATA is a body of airlines and therefore his observations are slightly skewed:

Safety: “India’s rapid growth must be accompanied with a strong focus on safety. Establishing of the Civil Aviation Safety Advisory Council (CASAC) [in the aftermath of the Air India Express crash at Mangalore] is an important step forward. With IATA being a Council member, I strongly encourage CASAC to recommend that the IATA Operational Safety Audit (IOSA) is mandated for all India’s carriers. IOSA has helped IATA’s members achieve a safety record 2.5 times better than the global average. Taking advantage of this global standard will add a new dimension to India’s safety oversight.”

Infrastructure: “Developments in Delhi are impressive. For the first time India has a hub that could rival Singapore or Dubai, with plans to accommodate 100 million passengers by 2030. But I have concerns over Mumbai. By 2016, stop-gap measures may take capacity up to 40 million. But where is Mumbai’s 100 million passenger plan? We must find a solution that is environmentally responsible. The clock is ticking and a conclusion is urgently needed. Mumbai is a great city. However history tells us that no city can remain great without effective transport links. It is time for all parties to work together to agree on a site and get on with it,”. [Bisignani was politically diplomatic in not mentioning that Mumbai with two runways achieves just about the same number of flight movements as London Gatwick does with one runway and that too in only 18 hours compared to 24 in Mumbai. A move that current airport operator MIAL is strongly pushing India’s regulator the Directorate General of Civil Aviation to implement.]

Liberalization: “In stark contrast to Minister Patel’s pragmatic liberalization is the old world approach to foreign direct investment (FDI) in aviation by the Ministry of Commerce. India allows 100% FDI in transit systems, ports, harbors, hotels, ocean transport and road systems. But airline FDI is restricted to 49%. Moreover, no foreign airline can invest in an Indian airline. The inconsistency is difficult to understand. Does it make sense that a non-Indian airline can own 100% of a green field airport project, but cannot invest a single Rupee in an Indian airline? The success of India’s airlines should not be compromised by an archaic investment policy that isolates them from global trends,” [like consolidation, multi-hub and multi-brand].

Policy Coordination: To build competitiveness, it is critical that the costs of operating in India is reduced. AERA—the airports regulator—has set a positive precedent by upholding ICAO principles and disallowing automatic cost increases for the airports in Delhi and Mumbai. But the Ministry of Finance has added $236 million to the cost of operating in India with an extension of India’s 10.3% service tax from international premium tickets to economy and domestic travel as well, in contravention of the International Civil Aviation Organization (ICAO) rules. “It is an embarrassing situation for such a relevant country as India—which is a member of the ICAO Council—to be ignoring rules that it has helped to develop,”. [the taxation policy exemplifies the archaic thinking that air travel is a luxury, and let us not forget the absolutely skewed over-tax policy on aviation turbine fuel which makes it about twice more expensive when compared to international prices]

Security: Bisignani noted a similar disconnect on security. Global standards, approved through ICAO, exist for the transmission of advance passenger information to governments for security purposes. “India chose to ignore these standards and invented its own unique requirements and processes. Moreover, local customs offices in Bangalore and Mumbai have added further local complications. Each deviation from the global standard adds costs but does not improve security. The Indian government committed to develop a program based on global standards with a single portal for transmitting data. The deadline for that has passed and we are still waiting. And to add insult to injury, airlines are now being threatened with fines for data transmission errors resulting from the complexity of the system,”. [Mr. Bisignani the Sanskrit word for difficult is Kashtam. Marry this to the addage – “the squeaky wheel gets the grease”. Get the hint ??]

About Devesh Agarwal

A electronics and automotive product management, marketing and branding expert, he was awarded a silver medal at the Lockheed Martin innovation competition 2010. He is ranked 6th on Mashable's list of aviation pros on Twitter and in addition to Bangalore Aviation, he has contributed to leading publications like Aviation Week, Conde Nast Traveller India, The Economic Times, and The Mint (a Wall Street Journal content partner). He remains a frequent flier and shares the good, the bad, and the ugly about the Indian aviation industry without fear or favour.

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