x Abu Dhabi, UAEWednesday 26 July 2017

Neighbours also fly through turbulence

Some of the problems of high fuel costs and weak currency that are troubling Pakistan International Airlines are equally common across the border in India.

Some of the problems of high fuel costs and weak currency that are troubling Pakistan International Airlines are equally common across the border in India.

The Indian government has said it may provide as much as 300 billion Indian rupees (Dh18.63bn) to Air India, its unprofitable national carrier, through 2020. Kingfisher Airlines, India's second-biggest carrier by market share in 2011, has halted operations since October after five years of losses.

Indian carriers lost about $1.6bn in the financial year ended March 31 - with most of this accounted for by Air India and Kingfisher - as a result of increased expenses and declining passenger traffic, according to a report by the Capa Centre for Aviation in Sydney. And many of the structural challenges in Indian aviation - such as the uncertain and unpredictable policy environment, intervention by the regulator on commercial matters, high sales tax on fuel and the low productivity of airports and airspace - remain unaddressed, according to Capa.

But a historic decision by India in September to allow foreign airlines to invest up to 49 per cent in Indian carriers is a vital step in establishing a more professional and corporatised sector in India, Capa says.

"It offers the promise not only of introducing strategic capital and expertise into the market, but also delivers a much-needed confidence factor for other institutional funding," the organisation adds.

Some foreign players have lined up already.

Abu Dhabi's Etihad Airways is set to buy a minority stake in Jet Airways, India's second-largest domestic and international carrier, pending approval. There is likely to be an extensive code-sharing arrangement between the two partners, network and scheduling coordination and integration of frequent flyer programmes, Capa predicts.

The Malaysian budget airline Air Asia is aiming to start a new airline in India in October in a joint venture with the Tata Group and Arun Bhatia of Telstra Tradeplace and plans to make that its biggest carrier globally.

AirAsia is South-east Asia's largest carrier by fleet size and has affiliate operations in Malaysia, Indonesia, Thailand and the Philippines.

One of Asia's most profitable airlines, AirAsia has grown extensively over the past decade through a mix of low fares, revenue management and cost control.

The airline aims to shake up the Indian market by offering low fares and even free tickets, AirAsia chief executive Tony Fernandes said at a news conference this month in the Indian capital on the last leg of a four-city Indian tour that included Kochi, Chennai and Mumbai.

One way AirAsia plans to bring down costs is by operating from the southern city of Chennai, with additional hubs in Kochi and Bangalore. The airline would avoid the more popular but expensive routes of Delhi and Mumbai, which have higher airport charges. It also plans to replicate its global model of charging extra for services.

This is a tactic being adopted by some airlines in India now. This year several Indian airlines reduced the allowance for checked bags by 5kg to 15kg. Some have also started charging passengers who are checking in online 200 rupees if they choose an aisle or window seat rather than a central one.

There is no charge for checking in online for a middle seat but passengers are prohibited from changing seat preference at the airport counter.

Some, such as the budget carrier SpiceJet, say they will import jet fuel after the Indian government relaxed its rules this year. Indian carriers currently purchase fuel from oil marketing companies at airports across the country, where they have to pay local taxes, in addition to the federal tax.

The move would allow the airline to bypass taxes from provincial governments - taxes that bump up the price for fuel by 30 per cent to 40 per cent compared with international rates.

SpiceJet, which operates flights to other countries in the subcontinent including Kathmandu and Colombo, plans to add other cities in Asia and the Middle East, especially to China, a lucrative option as there are not many Indian carriers that currently connect the country to destinations in the region.

Whether in the long term it will be an example of the subcontinent's aviation sector recovery only time will tell.

 

business@thenational.ae