Far from it. The number of airlines in India is low when compared with the US (104 airlines), Canada (61), Russia (37), China (40), Indonesia (26), Australia (23), the UK (20) and Brazil (18). In terms of fleet size, India has just around 400 aircraft, mostly single-aisle. In contrast, just the Big 4 in the US (American, Delta, United and SouthWest) have over 3,000 aircraft; and the Big 3 in China (Eastern, Southern and Air China) around 1,200. Thats the scale of opportunity that beckons India, if we get our act right.
Passengers love new airlines. So do airports, cargo-shippers, hoteliers, aircraft manufacturers, oil companies, etc. Competition brings greater choices, efficiency and customer focus. It helps reduce airfares, airline arrogance and the risk of cartelisation. This also highlight the Indian governments intention to focus on larger issues of aviation growth, safety and security; and quit playing God. But aren't we creating over-capacity
Indian aviations problems are not over-capacity but gross under-utilisation, thanks to over-regulation and myopic taxation policies.
Industry dynamics are best left to market forces. All airlines have promoters, board members and bankers keeping a close eye. The media is watching closely, too. Ultimately, the best will survive, the lesser ones will get acquired, and the bad ones will fall by the wayside.
Most new players have fleet plans of 2-5 aircraft spread over the next 6-12 months. With Airbus and Boeing having an order book of over 8 years, new aircraft are difficult to come by. Passengers wont like old aircraft. Global leasing companies are wary of pumping in new aircraft in a difficult market. Thus, there are enough checks and balances to prevent a glut of aircraft in India.
Indian aviation needs a shock therapy
According to IATA chief Tony Tyler, the global airline industry is expected to report $18 billion of net profits in 2014 on revenues of $746 billion. This translates into a net margin of just 2.4%, making one wonder why would anyone enter the industry in the first place!
The situation in India is worse. According to the FICCI-KPMG Aviation Report 2014, India sells one of the costliest aviation turbine fuel (ATF) in the world, nearly 60% costlier than competing nations in the Gulf and the ASEAN region. On top of that are high costs of airports, aircraft leases, maintenance, repair and overhaul (MRO), training and compliances. There is no way Indian carriers can keep costs low and increase air travel penetration.
No wonder, nearly 99% of Indias population is yet to see the insides of an aircraft! This is despite India being the third-largest economy and among the top-ten aviation markets globally.
Hopes on the way
Indian aviation is under the iron grip of the government. From licensing to taxation to grounding of aircraft or pilots, it is the mai-baap of everything that flies. What gives us optimism is that most of Indias challengespolicies, procedures, regulations, taxation and perceptionsare man-made and hence surmountable.
The myth that aviation is a luxury service and supporting it may create a political backlash has been debunked by West Bengal. When Mamata Banerjee abolished ATF taxes at Bagdogra Airport, there were no violent street protests. Within weeks, several new flights started there, giving a fillip to local jobs and tourism. Four more states have reduced ATF taxes to 4-5%. Once ATF tax is reduced at the big four airportsDelhi, Mumbai, Chennai and Bangalorewe may see a breakout growth last seen during 2004-08.
The MoCA, Airports Authority of India (AAI), Bureau of Civil Aviation Security (BCAS) and the Directorate General of Civil Aviation (DGCA) are working on the no-frills airport (NFA) model which will be built with less than R50 crore. If India adheres to the Cape Town Convention, aircraft leasing costs and upfront deposits would reduce automatically. The MoCA is pushing the Central and state governments to abolish taxes on ATF and MRO. Maharashtra has already done it for the MRO at Nagpur. Local MRO will arrest loss of forex for airlines, save the cost of ferrying empty aircraft abroad and create local employment.
Other pending reforms include abolition of the illogical 5/20 Rule, decontrolling ancillary revenue, overhauling the DGCA, privatising Air India, promoting local aerospace manufacturing; air cargo and general aviation, consolidating ground handling, ensuring Flexible Use of Airspace (FUA), corporatising Air Navigation Services (ANS) and implementing the GAGAN project on time. We are seeing greater collaboration between MoCA and ministries like finance, home, defence, tourism, environment, etc, on aviation matters.
What should the newcomers do
Newcomers may do well to study an airline that started in 2006 and focused on fundamentals like on-time performance, cost control, aircraft sale-and-leaseback, hassle-free processes, etc. It avoided gimmicks, freebies and costly ad-campaigns. In six short years, it did the unthinkableachieving the largest market share in India. More importantly, it also made profits, year after year.
Being a me-too airline will not help. The target customer and the airlines USP should be defined carefully. The choice of positioning, aircraft, routes, service offerings and staff would draw from that. It may be advisable to choose frequency over number of stations. Finally, the focus has to be on the tiny details, day after day, flight after flight. Its that simple. Or that tough!
Number 1 by 2030
The long-term potential of the under-penetrated Indian market is extremely positive. That's the reason foreign carriers are making a beeline to India; and Indian carriers are placing large orders. The new airlines will bring innovation and an added zing.
Over the next 12-18 months, we may see industry consolidation since the current flyer base cannot justify more than four strong pan-India carriers. Others would become niche players and help create regional connectivity in collaboration with pan-India carriers. With a supportive government, we are well on our way to become the worlds third-largest aviation market by 2020. Thereafter, we would chase the US and China for the number one spot in 2030.
(Assisted by Kunal Sinha, Senior Consultant, Aerospace and Defence, KPMG in India)
The author is Partner and India Head of Aerospace and Defence at KPMG, and Chairman-Aviation at CII.
Views are personal