Sucheta Dalal :Aviation Industry Set For A Takeoff
Sucheta Dalal

Click here for FREE MEMBERSHIP to Moneylife Foundation which entitles you to:
• Access to information on investment issues

• Invitations to attend free workshops on financial literacy
• Grievance redressal


You are here: Home » Column Topics » Financial Express » Aviation Industry Set For A Takeoff
                       Previous           Next

Aviation Industry Set For A Takeoff  

Aug 2, 2004


The airline industry is all a-twitter. An upstart from the south with a no-frills airline and the headline-grabbing promise of taking people from Mumbai to Delhi at just Rs 500+tax, threatens to change the rules of the game. And just as industry heavyweights are readying to enter the fray.


Most people forget that the Rs 500 fare is a lottery that one or two passengers would win (Deccan Airways should put up the names of these lucky people on its website for the first few months). But its low regular fares have forced existing players to slash their apex fare on trunk routes. This is great news for the domestic traveller, who is now looking forward to airline fares going the way of telecom tariffs. But let’s not forget that despite increased competition, telecom tariffs have settled at a fairly high rates for local calls, thanks to support from the “independent regulator” and the need to protect money-guzzling public sector monoliths.


The situation is identical in the domestic aviation sector. We have Indian Airlines, which is struggling to improve service, but remains cash-strapped, over-staffed and shackled by the operational constraints of being a public sector company. Yet, it will be protected, rather than cut loose to fly independently.


On the face of it, the private airline business seems headed for better days, but could this be an illusion? Remember when the skies were opened up to the private sector in 1989 with the arbitrary issue of licenses? One went to a chicken farmer (Parvez Damania of Agritech Hatcheries), or to a travel company with alleged underworld links (East West Airlines).


A third combined a faction of the Modi Group with Lufthansa, and then there was UB Air. At the same time, the entire might of the state ensured that the Tatas were kept out of the aviation business that they pioneered. Moreover, high costs and active discouragement from government, along with the inability of private operators to maintain a tight operation, killed them all.


Later, we saw the entry of two airlines that have showed staying power. But Jet Airways has a controversial shareholding that is still under investigation. And nobody has a clue about the seemingly inexhaustible resources of the Sahara Group and its airline.


Fifteen years later, we have a new crop of entrants ready to capture the Indian skies. Apart from Deccan Airways — whose staying power has yet to be tested — we will have Yamuna Airways, AirOne and Visa, who are in the same category.


The new entrants will compete against the financial muscle of Kingfisher Airways, which belongs to the highflying beer baron Vijay Mallya, who is re-entering the business. And there’s Go Airways from Nusli Wadia of Bombay Dyeing.


But this time, the Deccan Airways model of linking smaller cities and towns with low cost airways has tremendous business potential. That is, if the airlines are able to control costs, logistics and, most crucially, the aircraft turnaround time.


Consider the pluses. Thanks to politicians making merry with public funds, India has plenty of airports, most of them still usable with a little effort. A 1997 confidential report by the Directorate of Air Routes and Aerodromes reveals that India has a whopping 44 airports, owned by the Airport Authority of India (92), the Defence services (136 airports), state governments (156), airports and private owners (62).


Of these, as many as 135 are lying unused and abandoned; others see occasional flights. The high profile tourism minister Renuka Choudhary should be interested in checking out how many of these can be revived to link important tourist destinations and commercially active smaller cities with small, no-frills services.


The last decade has seen all large corporate houses, especially family controlled groups, acquiring multiple aircraft each. They have also invested in building airstrips and mini-airports at the cost of their publicly isted companies. With a little encouragement from the government, all these can be activated and turned into viable destinations for private airlines. Vijaynagar in Karnataka (linking to several fantastic historical sites) and Hazira and Jamnagar in Gujarat are destinations that come easily to mind.


But all this will happen only with some more encouragement from the government (the previous government has already given them a fighting chance through tax concessions). A public sector aviation chief recently told me that just waiving the hefty landing charges for commercial aircraft at smaller airports would be enough to give a big fillip to the business. A smart government should, instead, focus on the bigger economic benefit that would flow from linking smaller cities and tourist destinations by air.

The question is, do the new entrants have it in them to run a successful business? The answer is difficult. Some will fly and some will fold up. The first crop of Damania, Modi Luft, East West, UB Air and even NEPC Skylines died a quick death. This time too, Vijay Mallya may seem to have deep pockets and plans to invest $750 million on a dozen aircraft. But his recent corporate filing (with the Securities and Exchange Board of India) shows 12 loss-making companies and four under rehabilitation.


But, despite niggling doubts and the need for some incentives, the aviation industry today is best positioned for a smooth take-off that will yield significant economic benefits.


[email protected]


-- Sucheta Dalal