The Hindu Business Line : 100 years of civil aviation

COME December 17, there will be celebration of the centenary of the first powered flight. On December 17, 1903, the brothers Orville and Wilbur Wright flew their plane from Kitty Hawk in North Carolina, US, covering a distance of 120 feet. This was the first practical demonstration of powered flight, signalling the start of an amazing epoch of man's conquest of air and space.

Yet, an industry that is 100 years old does not seem to present a very healthy picture. If one compares it with the motor-car industry, created not long after the Wright brothers made history, one will find that the state of commercial aviation leaves much to be desired.

The automobile industry is now a global industry dominated by a dozen firms, at least half of which make good profits. Commercial aviation, on the other hand, consists of more than 250 international carriers and 500-plus domestic airlines, but not one doing too well. The airlines have not earned enough profits to cover the cost of their capital over the past 30 years.

The world's biggest carrier, American Airlines, has barely seven per cent of the world market whereas the world's biggest car-maker, General Motors, commands (along with the associated firms) about a quarter of the world's automobile market.

Aviation has been incompletely deregulated, and that too only in two markets, the US and Europe. Everywhere else, governments dictate who flies under what rules.

The objective is to preserve state-owned national carriers, more for prestige rather than profit. And numerous restrictions on foreign ownership impede cross-border mergers.

Big network carriers, in their desperate bid to keep their heads above water, maintain large route networks.

Trade unions resist job cuts and politicians oppose closure of unviable routes in their territories. As a result, the airlines dominate their home airports by successfully putting pressure on the local governments to keep out competitors. It is like PAL getting Ambassador cars banned in Maharashtra.

Bilateral deals prevent one national carrier to fly out of other countries. For example, British Airways cannot fly to the US from Frankfurt or Paris, or Lutfhansa from London's Heathrow. To use the car industry's analogy again, it is as if only Marutis are allowed to drive on the Delhi-Gurgaon road.

So, it will not be correct to say that the crisis facing the global airline industry today has been caused by the effects of terrorism, war, SARS or economic downturn, as it is often made out to be.

Even before September 11, there were two big changes — growth of low-cost carriers (LCCs) and transparency of fares provided by the Internet — to which the big airlines did not pay much attention and act accordingly.

As a result, long before 9/11, the big airlines had started facing problems attracting business travellers on a scale they did in the 1990s.

According to one estimate, by 2010 LCCs will grab half the European market, up from 10 per cent now. In America, the LCCs will command 25 per cent of the market.

Most LCCs have a business model based on point-to-point connections between cities, flying out of cheaper secondary airports.

The big revenue risk they face in regard to point-to-point service is minimised by offering low fares and flying full aircraft.

Unlike big carriers, they are not required to keep expensive planes sitting on tarmac at a hub. So LCCs get 50 per cent more flying hours per day out of their aircraft than the conventional carriers.

Big airlines are slowly learning from the LCCs how to use Internet bookings to cut distribution costs — by imitating their dynamic pricing, selling cheap seats early and raising the price as seats fill up.

Some of the more enterprising airlines in the US have started moving into the segment dominated by the big airlines by offering separate business cabin and transcontinental services. In the process, they might capture half the market.

Now let us turn to the Indian situation. Air transport to and from India has suffered from capacity shortages for many years, mainly because of the slow liberalisation of the air transport sector.

The seat capacity on all international routes to India grew 40 per cent between 1989 and 2000, compared to a whopping 485 per cent growth for China, according to a study commissioned by the Department of Tourism.

Similarly, countries such as the UK and the US, with a higher base than in India, recorded a higher growth rate at 101 per cent and 61 per cent respectively during the same period, the study said.

The problem of restricted capacity gets further exacerbated in peak seasons — October-March for inbound visitors and April-June for outbound travellers.

An analysis of the index cost of air tickets from London to various destinations in South-East Asia and the Pacific revealed that India was the most expensive destination compared to competitive ones in the region.

Fortunately, the present government at the Centre has put the aviation sector reform on the fast-track by throwing it open to competition from both domestic private carriers and foreign airlines, though much to the chagrin of the state-owned carriers.

However, the government also intends to go ahead with the aircraft acquisition plans of the state-owned carriers.

As part of the reform process, the airports too are to be modernised. At last, some cheer. But, then, it might be too premature to rub ones hands in expectation.

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