IATA chief calls for ‘India Inc.’ approach to aviation
India’s aviation industry has the potential to be a major force for economic growth in the country, but is currently shackled by government regulatory and economic policies, Tony Tyler, director general of the International Air Transport Association, said in a July 25 speech to industry officials in New Delhi.
Liberalizing market controls, reducing bureaucratic costs and planning for more airport capacity are critical to nursing a weak sector of India’s economy to health, he said.
Indian airlines lost $2 billion between the first quarters of 2011 and 2012 after losing $3.5 billion during the previous three years. Kingfisher Airlines has never been profitable, losing $1.27 billion in eight years of operation. In the spring, it cut the number of flights from 400 to 100 and the number of planes it owns from 64 to 16. The airline has also been besieged by strikes after struggling to pay employees, leasing companies and vendors on time.
Government-owned flag carrier Air India, which merged with Indian Airlines in 2007, has lost market share to private carriers and more than $2.6 billion in the past three years while engaging in a price war that has damaged other carriers. The Indian government has supported the company with almost $6 billion in loans for planes. Air India has received $466 million in direct government aid since early 2009 and received another bailout of $1.4 billion earlier this year.
“Long-term state aid has not rehabilitated the business and in the meantime it is having a destructive impact on the market. Governments must lay the foundations for fair competition and regulate safety, security and sustainability,” Tyler said.
He recommended India follow the example of Japan Airlines, which went into government receivership in 2010 but was allowed to make drastic changes to its structure, including axing about 50 routes and 16,000 jobs in a country where corporations take a social welfare approach to jobs. JAL has since emerged from bankruptcy and plans to relist its shares after reporting a $2.5 billion profit in 2011. Government intervention in JAL’s case, he said, was short-lived and based on sound business principles.
“Government aid must not be a blank check. Clear accountabilities and timelines for management, employees and everybody involved have to be set. And transparent disclosure is needed to measure progress. Without this, the attempts to rescue the national carrier could well send the whole sector into intensive care,” Tyler professed.
The IATA chief expressed hope that India’s government will follow through on its promise to allow foreign airlines to invest in Indian carriers.
But, he warned, without market-based reforms, lower taxes, and infrastructure improvements that allow investors to earn a reasonable return there will be no infusion of private cash into the Indian airline industry.
Taxes for tickets, fuel, landing and navigation services are a burden as are domestic fuel taxes of up to 30 percent that are topped off by an 8.2 percent excise duty. Fuel, therefore, accounts for 45 percent of total operating costs for Indian airlines compared to the global average of 33 percent, Tyler complained.
Reducing air travel and shipping costs would help the government meet new goals for increasing exports and tourism, he added.
Airport use charges are unreasonably high, Tyler said, including a 346 percent increase imposed at Delhi Airport in May. Economic regulators must consider market realities not simply mathematical formulas to determine appropriate fees, he told the Confederation of Indian Industry.
The increase will add over $400 million in operating costs for airlines providing connectivity to India through Delhi and dampen travel demand by 5 to 7 percent, according to IATA.
“That’s bad for airlines, for passengers, for Delhi International Airport Private Limited, for the Delhi hub, for Delhi as a city and, indeed, for India as a whole,” Tyler said.
The Delhi airport needs to make money to maintain the hub at world-class levels, but if fees are too high airlines will think twice about using the airport and its revenues will suffer, the airline industry executive said.
Part of the problem, according to Tyler, is that much of the concession fee paid to airport operator AAI is skimmed off to subsidize other public-sector airports, which contravenes international standards, distorts competition and reduces Delhi’s competitiveness.
More of the 46 percent in revenues that go to concessions need to be redirected to offset aviation charges and ticket taxes, Tyler declared.
“This could be the basis for a way forward that protects the interests of Delhi International, its airline customers, the fare-paying public, and the economy. And it is important that we find a workable solution soon to avoid Mumbai, with a similar concession structure, falling into the same dire situation.”
Tyler said airport infrastructure upgrades are not keeping up with a projected passenger volume of 274 million by 2017. Mumbai airport, for example, will be at full capacity by 2017 despite work underway to expand the existing terminal and the city needs a new airport to ensure continued economic growth in the nation’s financial capital.
“Increasing access to capital, building infrastructure, ensuring a cost-efficient operating structure and creating a tax regime focused on growth form the basis of an agenda to improve the competitiveness of Indian aviation and drive broad economic and social benefits. But there will be no success if policies are not coordinated — or even worse — if they work at cross purposes. Aviation is the responsibility of the Ministry of Civil Aviation. Its success, though, rests on the coordinated efforts of the ministries of Finance, Tourism, Commerce, Environment and others. It’s time for a grand plan to build India’s aviation future and thereby strengthen the Indian economy. For lack of a better description, what is needed is an ‘India Inc.’ approach to manage interests for the widest possible benefit,” Tyler said.