AIRLINES IN INDIA - GETTING CROWDED UP IN THE SKY
By Ruma Dubey
A few days ago, there was major concern – was Spicejet going the Kingfisher way? The stock price plunged over 15% over a single session. And all this started with the company defaulting on tax deposit. With memories of Kingfisher still very fresh, panic buttons were pressed when the company, despite cutting tax from employee salaries, did not give the TDS certificate or the Form 16. This made everyone wonder whether the company deposited the money with the Govt at all? The company later blamed it on ‘technical glitch’, typical airline language and tried to assuage investor concerns. There is also a possible Directorate General of Civil Aviation (DGCA) Audit getting into more details like financials, apart from engineering and others. A DGCA Audit also brings back bad memories as it was during the last 2011 audit that the audit had revealed major financial crisis in Kingfisher and Air India Express.
This arline company too continues to bleed. Its combined loss, from FY07 to FY14 stands at Rs.2194 crore and it incurred the highest ever loss in FY14 at Rs.1003 crore. Its total debt as at 31st March 2014 stood at Rs.1738 crore and cash at hand was at a mere Rs.5 crore.
That’s just Spicejet. Consultancy firm Centre for Asia Pacific Aviation (Capa) has stated the combined losses of existing airlines in India are expected to touch $1.4 billion in the current fiscal year as against combined loss of $1.77 billion in FY14. Accumulated losses of the last seven years have reached $10.6 billion. Indigo holds the distinction of being the only airline to make profits.
Yes, losses are a common factor across airline companies in India and causes are same – high fuel cost, lean season, falling yields, depreciating rupee and increase in airport charges. The various Govt tax is also one of the reasons why the sector is mired in red. Airport maintenance and lease charges are also pretty steep. Running an airline company in India is not easy, rather mostly unprofitable and that is thanks to the high fuel costs and the various state taxes which makes it all the more unviable. A break-up of the air fare shows that the base fare is Re.1 and then there are top ups like passenger service fare, airport fee, service tax and fuel surcharge. The cheapest ticket of Rs.2035 has a fuel surcharge of Rs.1175 and then the next biggest charge is the airport fee. So we are all paying the price for swanky new airports and more importantly, because the Govt is taking a high percentage when it comes to revenue sharing from these User Development Fees. Govt gets around 36% of revenue earned from UDF charges from Delhi airport and 39% from Mumbai airport and AAI’s revenues have increased 100% over the past five years, thanks to these UDFs.
Flying in the Indian skies in indeed getting tougher for these carriers. Yet, ironically, these companies dole out crazy discounts and competition is expected to only go up as six new carriers have been given the nod to start operations.
In July, the Govt issued No Objection Certificates to Air One, Premier Air, Zexus Air, Turbo Megha, Air Carnival and Zav Airways and the Tata-Singapore Airlines JV. Most of these are expected to start flying by end of FY15 while Tata-SIA could begin by December’14. So we currently have eight domestic airlines – Air India, Jet Airways, Jet Lite, Go Air, Air Costa, Indigo, SpiceJet and Air Asia of which only one is making profits. Now we are adding 6 more new airlines. What does this mean for the existing, already bleeding companies? More importantly, how does this encourage other new players to set shop at all? Or are we missing the trees for the forest? Doesn’t this mean that there seems to tremendous potential which missed the eye of the existing airlines?
First a look at the statistics – as per data put out by DGCA, total number of passengers carried by domestic airlines during Jan-Jun 2014 were 324.11 lakh v/s 310.14 lakh during the corresponding period of previous year thereby, registering a growth of 4.51%. MoM growth in June was 13.46%. In this, at end of Q2CY2014, private carriers have a market share of 81.5% and rest, 18.5% is held by Air India.
Well, the potential is immense. India has 422 aircraft for a population of 1.2 billion while China has 1,981 aircraft for 1.3 bn citizens. And the data from Centre for Asia Pacific Aviation data for 2012, showed that the number of domestic airline seats per capita is just 0.07 while it is 3.35 in Australia, 2.49 in US, 1.38 in Canada and 1.05 in Japan. Also more and more Indians are expected to travel in India – it is estimated that domestic air passengers in the country will triple to around 175 million annually by 2021 v/s 58 million in 2012.
There is also talk of the Govt planning to improve air connectivity with a network of more than 100 airports planned to meet the expected passenger load capacity by 2020. The first such airport is to come up in Kishangarh town in Rajasthan's Ajmer district, scheduled to get operational by 2016. This if these plans to take off, passenger traffic will indeed grow by leaps and bounds and it would mean the need for passenger seats will only grow further.
The six new airlines to fly Indian skies:
Three national carriers given the NoC and not much information is available on these six.
Air One Aviation: Currently offers chartered services out of Delhi, Mumbai and Lucknow. Promoted by ex-President of Air Sahara.
Zexus Air: There isn’t much information about this airline; they are yet building a website. Only known fact is that it is Delhi based.
Premier Air: This is Chennai based, say some reports and some say, it is based from Bangalore. It is said to be promoted by NRI Umapathy Pinaghapani.
The three airlines for regional services are:
Turbo Megha: This is recognized more as Turbo Aviation, based out of Hyderabad and has film star Ram Charan Teja as a director. This company is the subsidiary of Turbo Aviation, which was formed in 2003, started operations with the manufacture of ground support equipment for airlines and ran its initial business with Air Deccan of Bangalore. From 2007, they offered ground-handling and worked with airlines like Air Sahara, Jet Airways, Kingfisher Airlines, Go Air, First Flight, Blue Dart and Spice Jet at various airports.
Air Carnival: This one has a website and says that it began charter services out of Delhi in 2013 and the Chairman is Mr.SI Nathan.
Zav Air: This is based out of Kolkatta and its USP is that it offers services across north east. It is headed by Kishor Zavery, which explains the ‘Zav’.