One
ray of hope in this otherwise descending sector is the recent move by
the Indian government to allow foreign direct investment
Dubai: Bad regulation,
outrageous taxes, high airport charges, volatile fuel costs, high
operating costs, inefficient infrastructure and rupee depreciation.
These are the ingredients that make up a recipe for disaster for India’s
aviation sector.
The one ray of hope in
this otherwise descending sector is the recent move by the Indian
government to allow foreign direct investment (FDI) of up to 49 per cent
in the country’s airlines.
Sure, it opens up
tremendous opportunities for Gulf as well as other global carriers that
have so far been waiting to gain a strong foothold in the Indian market.
But is it really helping Indian carriers emerge from their spiral? It
still remains to be seen if global carriers will take that leap and
invest in the debt-laden and loss-making Indian carriers such as Air
India and Kingfisher Airlines (the carrier which recently lost its
license owing to massive debts).
As Geneva-based aviation
analyst, Andrew Charlton of Aviation Advocacy, points out: “Indian
airlines are failing for a single reason — they have been subject to
terrible regulation and to regulatory interference for too long. There
has been incredibly restrictive investment rules, work practices and
work limitations enforced by unions with government support. There has
also been significant under-investment in infrastructure and incredibly
protectionist, restrictive negotiation of rights and access.”
And then there are
astronomically high ticket prices. In the first half (from
April-September) of financial year 2013, air traffic in India fell 1.8
per cent over the last year, “the first such instance in the past five
years”, according to Amber Dubey, partner and head of aviation at global
consultancy KPMG.
“Economic slowdown, weak
business sentiment and high ticket prices contributed to this drop in
traffic,” he said, adding that the exit of Kingfisher allowed airlines
to price tickets above cost for the first time in several years.
Clearly, the Indian
airline industry is failing for a number of reasons, but one can begin
with state-owned Air India and its regulators, as US-based analyst
Ernest S. Arvai of the Arvai Group points out.
“This inefficient carrier
is heavily subsidized by the government, which also mandates that it
charge fares lower than its costs to compete more effectively with more
efficient low-cost carriers. That process is simply staving off the
inevitable bankruptcy to come, were the state to stop propping it up,”
he says.
“In the EU, for example,
Air India would have been closed, like Malev in Hungary, for illegal
state subsidies propping up a money-losing operation,” Arvai added.
Depreciation of the
rupee, crude oil price volatility, high operating costs and high taxes
continue to plague the Indian aviation sector, according to KPMG’s
Dubey, who says that the outlook for the airline industry in the short
term remains that of cautious optimism.
“There have been
encouraging signals from the [civil aviation] ministry and one hopes
that pending reforms, especially on the taxation front, and regional
airports would be fast-tracked in 2013,” he said.
So what can be done to make sure the Indian aviation sector steers out of the turbulence?
For the government to
rationalize the taxes for long-term growth of this critically important
sector is just one of the options, according to Dubey.
“Else 2013 appears to be no better than 2012,” he warns.
“An improved alignment
between capacity and demand has seen yields strengthen and several
airlines have reduced their losses in first few quarters of FY
[financial year] 2013.
However, it is still too early to predict a turnaround in the Indian aviation industry,” he added.
What remains to be seen is whether India’s aviation sector will be able to manage a smooth take-off this year.
http://gulfnews.com
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment