Airlines
India has 4 international airports, New Delhi, Bombay, Calcutta and Madras. Over 80% of the international traffic, however, is concentrated at New Delhi and Bombay. Although Indian airports have long been thought of as lacking in facilities, new airports developments in New Delhi, Bombay and Madras have made them comparable with most middle-income country airports. In addition, there are 85 civil airports catering to domestic air traffic. The 4 international airports account for an estimated 40% of all domestic traffic as well.
India has 3 airlines. Its flag carrier, Air India is largely restricted to international operations. The domestic carrier Indian Airlines operates to some neighbouring countries and a feeder route airline, Vayudoot links remote or low traffic areas to nodal points. The Indian government has also set up the Helicopter Corporation of India to provide access to mountain areas and to handle the offshore personnel transport requirements.
Over the past 25 years, domestic air travel has grown rapidly. In fiscal 1986, Indian Airlines carried over 10 million passengers, making it the second largest domestic airline outside of US. Even in terms of its network of approximately 82,000 unduplicated route kilometers, it ranks second in the world. Over the past years, Indian Airlines load factor has been in excess of 75% and the daily aircraft utilization has ranged up to 8 hours on an average. Considering its monopoly status and the rapidly growing demand, profitability on operations has been high. In both fiscal year 1985 and 1986, Indian Airlines notched up annual profits in excess of Rs 650 million.
Annual demand growth has consistently been in excess of 10.5% for the entire decade 1976 to 1986. Estimates of demand growth for the period from 1986 to 2000 has been variously pegged at between 10% and 12%per annum. Indian Airlines expects to touch 40 million passengers per annum by year 2000. With this target in mind, Indian Airlines will need an estimated 30 250-seater plus aircraft, 65 150-seater plus aircraft and 60 100-seater plus aircraft.
The Indian Airlines’ management estimates that this will cost over Rs 115 billion but it expects these resources to be fully generated internally. Cross-border leasing has generally been difficult to conclude in India because the tax implications have been subjected to much debate. The Indian Airlines foray is therefore being watched with much interest by aviation circles and merchant bankers in India.
Vayudoot, which was set up primarily as a feeder airline in 1984 has already expanded its network to cover more than 80 destinations The airline operates small Fokker and Dornier turbo-prop aircraft. Despite its concentration on feeder routes which would be sub-optimal for Indian Airlines, Vayudoot has managed to become a profitable operation.
Since its inception in the early 1950s, India’s international airline, Air India has progressed remarkably. In terms of passengers carried, Air India has grown at an annual rate exceeding 12.4% between 1960 and 1985. A major part of the growth, however came during the 1970s and coincided with the large scale movement of émigré Indian labour to West Asia. In 1971, Air India carried 491,000 passengers. By 1981, this figure had spurted to 1.95 million. Since then, growth has been moderate up to 4% annually with the exception of year 1984 when the growth rate felled sharply to just 1.1%. In fiscal 1986, Air India carried an estimated 2.5 million passengers. The bulk of Air India’s passenger traffic is to and fro India.
India’s Disinvestment Commission has proposed that 60% of Air India equity should be sold off to the private sector and that a foreign airline should take the lion’s share of that as a strategic partner. For Indian Airlines, the plan is to sell off 51%of its equity, with the most of that going to a major Indian business or to financial institutions. Indian Airlines is the slightly more attractive venture as unlike Air India which has been losing money since 1995, only made a slight profit in 1997-1998 but it is expected to slip back into losses this year. Air India is noted for routinely delaying flights for politicians and has the worst on-time record in the industry. Neither airline, however is a highflier.
The government is considering to inject loans and equity of up to US$475 million to offset the airlines’ past losses and to provide funds for new aircraft so as to reverse a decade of neglect in which there had been no major purchases. But cash may not be enough as along with the rest of India’s aviation industry, Air India and Indian Airlines have suffered from interfering politicians, cronyism and ineffectual management. This has made improving them far from easy.
Air India for example, has about 720 employees for each of its 26 aircraft; Indian Airlines has 360 employees for each of its 52 aircraft. In the US, some airlines manage with less than 100 and 125 per plane is on the high side.
Aviation is also one of the classic examples of India’s reform dilemma. It has made a start but has stopped short of real liberalization. Domestic airlines for example, are opened up to the private sector in 1993. Gulf Air and Kuwait Airlines each took a 20% of a new venture called Jet Ways, now India’s most popular and successful airline. Vested interests however, including Jet, which is well-connected politically opposed further private sector entrants and persuaded the Indian government to ban foreign airlines from taking stakes in domestic carriers. The reason is to stop a rival domestic airline from being set up by a joint venture between Singapore Airlines (SIA) and one of India’s most respected business groups, Tata.
Protecting the inefficient Air India from foreign competitors, Foreign airlines like Cathy Pacific, United British Airways and Lufthansa are only allowed to sit their planes to the capacity of Air India’s aircraft which is below their full accommodation capacity for the fear that they might take customers from Air India. Moreover, Cathy Pacific was denied permission for more than 10 years from to fly the Hong Kong-Delhi route.
Indian policymakers know that leaving the aviation door half-open is not good enough. A draft policy prepared in 1998 by government and industry experts proposed open skies for all routes with private-sector investment in both airlines and airports. The creation of an independent regulatory authority like the US’s Federal Aviation Administration would be ideal for foreign carriers and Indian travelers.
However, the current Aviation Minister, Ananth Kumar does not want liberalization to weaken his grip on the industry. He has sacked every member of the boards that run the 2 airlines after they proposed the setting up of a combined holding company and the working towards a merger. Hence the dismissal raise real doubts about whether the Indian government is truly willing to divest control of the airlines. Many politicians believe that Air India and Indian Airlines are regarded as national symbols on top of being transportation means. The sale of any of them will hence be deemed as the sale of the national birthright of India. Reforms in the aviation industry will thus be difficult.
