Is the aviation party getting too crowded?

Aug 21 2014, 01:45 IST
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SummaryThe number of airlines in India is low when compared with the US (104 airlines), Canada (61), Russia (37), China (40), Indonesia (26) and Brazil (18). In terms of fleet size, India has just around 400 aircraft, mostly single-aisle while just the Big 4 in the US (American, Delta, United and SouthWest) have over 3,000 aircraft

The ministry of civil aviation (MoCA) recently granted no-objection certificates (NOCs) to six new airlines: three national and three regional. The country already has seven airlines: IndiGo, Jet Airways, Air India, SpiceJet, GoAir, Air Costa and AirAsia; with Tata-SIAís Vistara expected to take to the skies in October, is the party getting a little too crowded?

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. Thatís 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 governmentís intention to focus on larger issues of aviation growth, safety and security; and quit playing God. But aren't we creating over-capacity?

Indian aviationís 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 wonít 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

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