Indian aviation to come of age in 2005

After years of unfulfilled potential, 2005 holds promise of being the year when Indian aviation finally comes of age, the Centre for Asia Pacific Aviation states in its annual Outlook report.

The report, released at the Asia Pacific & Middle East Aviation and Tourism Outlook 2005 conference in Singapore today, says that this year will see a number of significant developments:

* A new civil aviation policy is expected to be released early in the year;
* The country’s airlines could place orders for up to 200 aircraft over the next 12 months;
* Private Indian carriers are likely to be seen in airports in Southeast Asia, possibly even in Europe; and 
* A long overdue modernisation of airport infrastructure will get underway.

According to the report, “there will be bumps along the way. The communist parties are opposed to a number of aviation initiatives including airport privatisation, foreign investment and private carriers operate internationally. This is unlikely to prevent further reforms, but may lead to some delays and possible dilution of their extent.”

The Centre warns that continued strong growth, such as the 25-30% increase in domestic traffic in 2004 will place increased pressure on already congested airports and on demand for skilled labour such as pilots.

“Inadequate infrastructure may prove to be a constraint on growth. A buoyant market will attract new entrants as well as increased capacity by incumbent carriers. Fierce competition and inexperienced management is likely to lead to some failures along the way.”

Other Highlights of 2004 and the Year Ahead

* Economic growth of approximately 7% per annum, combined with increased competition and lower fares will drive strong increases in both domestic and outbound traffic in 2005.

* India received 3.4 million foreign visitors in 2004, up 23.5% year-on-year. Tourism revenue rose 36.1% to USD4.8 billion. Arrivals in 2005 are expected to surge by up to 30%;

* Airport privatisation finally gets underway this year, with nine out of the ten consortia that submitted expressions of interest in Delhi and Mumbai Airports due to prepare financial bids, with the process to be completed by March. There may yet be some further delays but the intent on this occasion appears to be genuine. Following the successful conclusion of the process for these two airports, Chennai and Kolkata are expected to be the next to be privatised in 2005, followed by regional airports from 2006.

* 2005 will also see construction commence of two greenfield airports in the southern cities of Bangalore and Hyderabad. After lengthy and frustrating delays, both received final clearances in December 2004;

* India’s two state-owned carriers, Air India and Indian Airlines, enter 2005 with great hope, but possibly tinged with some concerns. Hope, because after years of neglect by the state and ongoing uncertainty about their ownership, the government has clearly committed to funding the carriers’ fleet expansion and modernization;

* However, the government has also shown itself to be in favour of deregulation which will significantly increase the competitive pressures faced by the two carriers. Initiatives include the December 2004 decision to allow qualified private carriers to launch services to any international destination (excluding the lucrative Gulf routes for a period of three years), as well as the conclusion of increasingly liberal bilateral air services agreements with other countries (most recently with the UK and Australia) permitting increased access to the Indian market for foreign carriers;

* The positive news for the carriers concerns their fleet expansion, after years of almost no growth in capacity. Air India will shortly place an order for 50 long range aircraft and 18 B737-800/900s for Air India Express, its new low cost subsidiary. Air India Express is expected to commence operations in April 2005, initially with leased aircraft, operating routes to the Gulf and Southeast Asia;

* Meanwhile, Indian Airlines is expected to order 43 aircraft from the A320 family, primarily for domestic services. The government also plans to increase the level of coordination between the state-owned carriers to rationalise operations, reduce costs and prevent head-to-head competition. There is no question of privatisation in 2005, but the government may be preparing for a partial float in 2006/07;

* Jet Airways, the largest private domestic carrier with almost 45% market share, looks forward to 2005 as a year of great opportunity. The airline plans to complete an IPO by April for approximately 40% of the carrier’s equity to raise INR15 billion; 

* The low cost airline model is likely to take firm hold in 2005 with a number of proposed start-ups set to take to the skies, including Kingfisher, Go and Royal Airways;

* Air Deccan begins the year with a very positive outlook, however 2005 is likely to pose some challenges. As it expands its route network and competes increasingly with the larger carriers as well as new start-ups, it can expect a more aggressive response than it has perhaps experienced to date.

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