Crisis in Indian aviation
The industry hangs between double-digit growth of air passenger traffic and infrastructural barriers with a major chunk of airports in deficit, writes Amitabha Roychowdhury
There has been a double-digit growth in the Indian air passenger traffic for the past several years and the country is projected to become the third largest aviation market by 2022 after the US and China. The growth in air traffic has led major aircraft manufacturers such as Boeing and Airbus, global aviation bodies like the International Air Transport Association and the Airports Council International and other agencies, to project heightened demand for aeroplanes, airports and related infrastructure in India. Rating agencies estimate that Indian airlines will increase their capacity by 15-17 per cent in this fiscal alone. These growth projections are being tom-tommed as great achievements of the Indian aviation sector. In a recent report, rating agency ICRA said: "The key driver for the industry capacity growth continues to be the sizeable order backlog – approximately 1,033 aircraft of various sizes and configurations are on order by Indian airlines." Airbus and Boeing have also made similar projections. However, some basic common-sense questions arise: Where will these additional planes be parked? How will airspace congestion be managed? How or where will these growing number of aircraft be repaired or serviced? Will they operate to remote regions or Tier-II or Tier-III cities?
On the other hand, the existing number of aircraft operated by Indian airlines in the domestic airspace are experiencing very high passenger load factors. This ranges between 80-95 per cent, which normally speaking would deliver a high rate of revenue per passenger flown every kilometre to the Indian carriers. Instead, IndiGo reported a loss of Rs 652 crore in the quarter ended September 2018, compared with a profit of Rs 551 crore a year ago, while its competitor SpiceJet has reported a loss of Rs 389 crore during the same quarter. Troubled Jet Airways reported a loss of Rs 1.297 crore and accumulated losses of nearly Rs 2,500 crore in the first half of the current fiscal. Hit by the mounting losses, the Naresh Goyal-promoted airline is struggling for survival and has been in talks with several investors. On the Air India front, the government, after putting off its divestment, is in the process of finding ways to take care of its huge debt.
While the financial mess in the airlines has been much debated, the massive crisis in the field of airport infrastructure has not been in focus. Civil Aviation Ministry data shows that many airports owned and operated by Airports Authority of India (AAI) are running in deficit. Only 15 airports located in the major cities are in profits. It is a matter of relief for the government that the profits earned by these 15 airports are more than the total losses of the remaining 92 airports. There are a total of 126 airports in the country. Of these, the airports in Delhi, Mumbai, Bengaluru and Hyderabad are operated under private-public partnership (PPP).
The Airports Authority of India operates the remaining 123 airports. Of these, only 15 airports including those in Chennai, Kolkata, Ahmedabad and Lucknow are among those which are making profits. The remaining 92 airports even at major cities like Indore, Bhopal, Mangalore and Raipur are in deficit. The highest profit of Rs 455.4 crore in 2017-18 was made by the Chennai airport. However, this profit is less than 25 per cent from last year's profit. Kolkata airport is in the second in terms of profits. Mangalore airport has faced the biggest loss of Rs 74 crore in the last fiscal followed by Safdarjung airport of Delhi at second place with a loss of Rs 71 crore.
The NDA Government, since 2014, has given special emphasis on growing the number of passengers. It launched a major programme Ude Desh ka Aam Nagrik (UDAN), aimed at providing air coverage to smaller towns and cities across the country. This has led to the launch of airlines in smaller cities. It also recently approved the proposal of leasing out six airports at Ahmedabad, Jaipur, Lucknow, Guwahati, Thiruvananthapuram and Mangaluru to be operated under the PPP mode.
However, the problem lies elsewhere. The crux is how can air connectivity be provided to attract the private airlines in launching flights from the new airports in Tier-II or Tier-III destinations. In the recent weeks, the AAI cancelled 58 licences of regional carriers Air Odisha and Deccan Charters who between them were awarded 84 routes under UDAN. Most of these routes connected smaller towns in Chhattisgarh, Tamil Nadu and Odisha. The cancellations came as these carriers could not either launch their flights or, if launched, could not continue with their flight operations on the routes awarded to them, within the given time span. Officials said these airlines were unable to either start or sustain operations. In addition, AAI has served Air Odisha and Deccan Charters notices for cancellation of the remaining 26 routes. This leaves only one regional carrier, TruJet, operating flights under UDAN. AAI had awarded 128 routes to five airlines in March 2017 in the first phase of UDAN.
The same story has been in many other UDAN routes, where flights have either not started or the services stopped due to lack of demand. A prime example is the operations at the civilian enclave at the Kanpur airport, where it has only been SpiceJet which has been flying off and on, while Air India has stopped flying to this major business hub of Uttar Pradesh. Aviation consultancy firm CAPA India had forecast that regional airlines' participation in the Regional Connectivity Scheme made little business sense given the huge cost structure of the airline business. "The success of UDAN depends on the participation by established airlines. It does not make a business case for small and independent operators without scale," CAPA had noted earlier.
Besides a cost-revenue mismatch, poor airport infrastructure is the other major hurdle to safety as well as to faster revenue growth. India's second busiest airport, Mumbai is bursting at the seams. A second nodal airport at Navi Mumbai has been bogged down by land acquisition and environmental issues. The government's private-public partnership model to build world-class airports in major cities has been a success as, in less than a decade, old airports in Delhi, Mumbai, Hyderabad, Bengaluru and elsewhere were transformed into world-class terminals. The problem, however, is capacity. With 300 million Indian and foreign passengers likely to use Indian airports by 2025, capacity enhancement is critical at metro airports as well as at mid-level cities like Chandigarh, Ahmedabad, Nagpur, Lucknow and Bhubaneswar.
In a recent statement to the media, Minister of State for Civil Aviation Jayant Sinha said "we have in place the NABH (Next generation airports of Bharat) Nirman programme and we have sufficient airport capacity to be able to handle a billion trips in the next 15-20 years. And in support of that, we see an investment pipeline of about Rs 1 lakh crore over the next five years between Brownfield and Greenfield expansions." Asked whether this would be driven by private investment, he said "experts are estimating that to get to the billion-trip capacity, we will need Rs 3-4 lakh crore. Of that, as I said, Rs 1 lakh crore is already in the pipeline. Of that Rs 1 lakh crore, about 20-25 per cent is likely to come from AAI over the next five years and the remainder is going to come from the private sector." The government has formed an empowered group of secretaries to ensure that the privatisation of six airports doesn't fall through the cracks. "The empowered group of secretaries will ensure that all issues are resolved for a successful completion of the privatisation process," said a senior government official. The panel will be headed by NITI Aayog CEO and will have secretaries of aviation, expenditure and economic affairs as its members. During the first week of November, the Cabinet had approved privatisation of six airports – Ahmedabad, Jaipur, Lucknow, Guwahati, Thiruvananthapuram and Mangaluru – on a PPP basis. This was decided after AAI failed to award airports in Jaipur and Ahmedabad on operations and management, as they could not find enough takers.
The Prime Minister's Office and NITI Aayog have been concerned over the distress in the aviation sector and believe that the sector, which could have been a sunrise sector, failed to achieve its potential and is in distress with airlines reporting financial stress. The government is discussing ways to reduce the cost of fuel by tax cuts to bring the aviation sector out of this mess. The Centre reduced excise duty on jet fuel to 11 per cent from 14 per cent during October but the respite wasn't enough for airlines which continued to bleed. While industry body Federation of Indian Airlines (FIA) has moved the government on issues such as high operating costs, it is to be seen how the government tackles all related issues to implement its objective of making the aam aadmi fly.
(The views expressed are strictly personal)