The Hindu Business Line : Civil aviation spreading wings

With more and more domestic travellers opting for air travel, the internal flights are overbooked; the low-cost no-frills airlines are trying to ride a buoyant market; the domestic private sector carriers have been permitted to fly outside the country; and both private and public sector airlines are on an acquisition spree.

THE country's civil aviation sector is on a high. With more and more domestic travellers opting for air travel, the internal flights are overbooked; the low-cost no-frills airlines are trying to ride aggressively a buoyant market; the domestic private sector carriers have been permitted to fly outside the country presumably as a compensation for accepting competition at home from the low-cost airlines; and both private and public sector airlines are on an acquisition spree. Capping it all, two private sector airports are to come up, after the many hold-ups and the bids are to be invited for privatizing two of the country's major airports.

With the domestic passenger market growing much faster than the capacity expansion, there is now a virtual traffic jam on the key routes served by four domestic carriers. According to one estimate, the passenger traffic growth, which was more than 25 per cent in first three quarters of 2004, is likely to be around 30 per cent in the fourth. As a result, finding seats on major routes is becoming difficult. The fog in North India and the consequent disruption in schedules have only added to the chaos. As waiting lists get longer, most domestic carriers reduce the number seats available under Apex and Super Apex schemes.

For years, the state-owned and highly bureaucratic domestic and international carriers were not allowed to expand capacity — the domestic carrier since 1988 and the international carrier since 1991. No wonder these carriers exerted political influence to stop foreign airlines from expanding operations in India and to curb the growth of private sector domestic operators. It is over 10 years now, the private operators first emerged on the domestic aviation scene but they too in their turn worked hard to block the entry of more operators and the formation of joint ventures with foreign airlines.

True, the situation has vastly changed since. The government is now easing restrictions on flights to and from and within country and the limit for foreign equity stake has been raised from 40 per cent to 49 per cent. But, then, the political and bureaucratic decisions continue to stymie efforts by foreign airlines to form joint ventures. The protectionist policy has not been totally abandoned. This is surprising in a country where more than 50 foreign airlines account for nearly 70 per cent of the two-way traffic.

Will the low-cost airlines, trying to make an aggressive entry into the domestic skies, succeed? Much will depend on how successful they will be in tapping the huge consumer segment that currently utilises the upper-class rail services and to what extent will the Railways gear itself up to meet the challenge. It is no denying that the upper class railway fares appear disproportionately higher compared to the services the Railways provide. The rise and fall (including premature death) of several low-cost airliners across the globe can also be an eyeopener for the Indian ventures.

Interestingly, it is not simply the passenger segment which holds out promise. The air cargo segment too appears equally, if not more, promising. Nearly half of the world' air freight moves in the bellies of passenger aircraft. With the introduction of more passenger aircraft, the cargo space available too will increase.

The other important factor is the expanding use of wide-body freighters and higher utilisation rates to be followed from the gradual increase in the number of hours the average freighter will be operated per year. More than half of the freighters that will be added to the world fleet in the coming years will be wide-body planes and the majority of these aircraft will be passenger-to-freighter conversions. The market for new-built freighters will be limited. Both our public sector carriers therefore mull launching of freighter services to have a share of the lucrative market.

While the international carrier is planning to add to its cargo carrying capacity by acquiring freighters and combis on lease, the domestic carrier hopes to concentrate on high-yielding areas such as express delivery and courier business by building a freighter fleet with the Boeings to be retired from the passenger service.

The international scenario is no less attractive. The International Air Transport Association (IATA) has forecast a six per cent annual growth in international cargo and passenger traffic between 2004 and 2008. According to the IATA, freight will see double-digit growth in 2004, rising to 10.1 per cent. It explains that the 6 per cent freight growth forecast through 2008 relies heavily on Asia-Pacific with markets linked to China and India slated to grow most rapidly. While Europe to Asia-Pacific will be the fastest growing market with 7 per cent annual growth, the traffic within Asia will also be above the global average at 6.1 per cent.

No wonder, Qantas Airways of Australia and CTI Holding of Thailand have signed a joint venture agreement for establishing Thai Air Cargo, a new Asian cargo airline, to be based in Bangkok. Air Hong Kong, an all cargo carrier in which Cathay Pacific and DHL Worldwide Express hold 60 per cent and 40 per cent stakes respectively, has signed a firm contract for two additional freighter aircraft with options for further two.

Emirates SkyCargo, currently having six wet-leased aircraft, proposes to buy three freighters for operation on key regional routes and high-density cargo markets which also include the sub-continent.

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