Trends that manifested themselves during the latter half of 2009 need to be studied so as to crystal gaze into 2010
The year 2009 was one that the aviation industry would like to wipe off its memory. Director General and CEO of International Air Transport Association (IATA) Giovanni Bisignani is on record as having stated, “In terms of demand, 2009 goes into history books as the worst year the industry has ever seen. We have permanently lost 2.5 years of growth in passenger markets and 3.5 years of growth in the freight business.” The latter part of his statement refers to the airlines and other aviation companies that folded up, some that did not start at all, and the collateral delays in en-terprises that would have been the infrastructure required to support aviation.
So far as airlines are concerned, according to IATA, there was a 3.5 per cent decline in passenger traffic and a 10 per cent drop in freight carriage by airlines during the year 2009. It may be pertinent to note that IATA estimates a net loss of $11 billion (Rs 50,835 crore) for 2009. This figure is much higher than the average for the last decade which is about $4.91 billion (Rs 22,690 crore). Much as we would like to grant 2009 a decent burial here and cast an interrogative look at the portents that indicate what 2010 holds out for the airline industry in India, the trends that manifested themselves during the latter half of 2009 need to be studied so as to crystal gaze into 2010.
According to the figures released by the Airports Authority of India (AAI), domestic air travel market showed a 20 per cent growth in the second half of 2009 over 2008. However, as the second half of 2008 itself had witnessed a sharp fall in demand, this 20 per cent growth actually represents a rebound only to the 2007 levels. It is estimated that the Indian aviation industry lost around Rs 10,000 crore during 2009. However, the last quarter of 2009 brought forth some good cheer in the form of buoyant results from some airlines. Jet Airways and SpiceJet both declared handsome profits for that quarter. GoAir’s balance sheet for the quarter is also said to have crossed the border between red and black.
However, in the absence of published results, this iteration cannot be confirmed. Considering that all three airlines had heavy losses during the corresponding quarter the previous year, these profit lines coming as they did at the end of a terrible year, are definitely cause for cheer. But do these figures truly presage a linear progression to prosperity for the airline industry? As for the dynamics of domestic market shares, Kingfisher lost its first position in the domestic market to Jet Airways. Between the two, they continue to control around half of the Indian market. Kingfisher’s losses increased during Q3 from Rs 413 crore in the corresponding period the previous year to Rs 420 crore. Kingfisher plans to raise Rs 400 crore from the market while loss-making Air India is likely to get Rs 1,200 crore in the forthcoming Budget. In 2009, GoAir saw its share of the domestic market double from 2.5 per cent in January to over five per cent in December. IndiGo and SpiceJet also gained a little in the market share as MDLR ceased operations in the beginning of October.
Going International
SpiceJet has applied to the Directorate General of Civil Aviation for permission to fly abroad from June 2010, initially only to South East Asian and South Asian countries. “We do not plan to fly to longer destinations. We plan to go slow on our international plans,” CEO, SpiceJet, Sanjay Agarwal is quoted to have stated. The current regulatory requirement is a fleet of 20 aircraft and five years of domestic operations. SpiceJet will be the country’s first Low Cost Carrier (LCC) to fly abroad. Air India Express, the LCC component of Air India already operates international flights, but is not an independent airline in this context. GoAir, another LCC, will complete five years of domestic operations in November 2010, but has no plans to fly abroad as it has only eight aircraft on its strength as of now. The airline plans to add only two aircraft to its fleet by November 2010. It is highly unlikely that, during 2010, the regulatory framework will become liberal and allow airlines with fleet size less than 20 to fly abroad. Should that come about, GoAir could consider going international. Paramount Airways also completes five years in August 2010 but with only five aircraft, it is way below the minimum of 20.
Apart from the fact that compared with domestic operations, international routes are financially more lucrative for airlines, there are other advantages in flying abroad. International routes have longer stage lengths, more liberal Flight Duty Time/Flight Time Limitations and provide for higher daily utilisation rate of the aircraft. Typically, an aircraft being used for domestic sectors would be utilised for 12 to 13 hours a day. This figure could go up by 15 per cent in international operations. This factor is all the more important as the current regulatory framework in India is very generous to foreign airlines flying into and out of India—at the cost of Indian airlines. This threat will remain around during the year.
Air Asia, after four years of struggle, has managed to break into the high potential Vietnam aviation market. This is the carrier’s fourth ASEAN venture after Malaysia, Thailand and Indonesia and sets it on course to tackle its next ASEAN ambition, a venture in the Philippines. Market watchers feel that India would be their next target. A possible alliance between Air Asia and Jetstar, which could happen in 2010, would be bad news for Indian airlines with foreign ambitions.
