A Year Of Revival For Indian Aviation

Even though the government failed to come out with its much touted national aviation policy that was expected by the end of the year to the great disappointment of the industry, 2015 was a year that saw several progressive changes in the sector both in terms of profitability as well as market revival. While return to profitability boosted the revival hopes of loss-making airlines, great success of an initial public offer (IPO) and friendlier foreign direct investment norms cheered the investor community during the year.

The year saw fuel cost at its lowest, bringing relief to all airlines, especially cash-strapped Jet Airways and Air India. While a reduced airfare also helped an overall revival in the market with a high double digit growth in passenger traffic, the success of Indigo’s public offer helped build confidence of aspiring fund raisers like GoAir and SpiceJet.

Policy
The release of the draft national civil aviation policy in October, despite reviving the hope of the industry by offering positive recommendations for infrastructure development and route expansion reforms, couldn’t sustain the enthusiasm as the final policy is still awaits cabinet approval.

The draft policy indicated removal of the 5/20 norm, which stipulates a minimum five years of operations and a fleet of 20 aircraft for oversees flying rights and pegged a minimum tariff of Rs 2,500 per ticket for each flying hour. The policy recommendation also envisaged expanding the domestic travel to touch at least 300 million passengers by 2022 emphasising the potential of the local aviation.

Indian aviation sector’s worst ever challenge has been the costliest operational environment comprises of high ATF cost, least efficient infrastructure that contributes to additional expenditure and the competition from foreign rivals.

But a reduced ATF cost, contributed by lower crude price in the global market, and a competitive ticket pricing by the airlines due to increased competition and innovative pricing model, the passenger traffic went up by 20.41 per cent this year.

Industry Turnaround
For Indian aviation industry, the last twelve months were a clear turnaround period. One of the country’s budget or low-cost carriers—an ailing SpiceJet saw the biggest financial revival after its co-founder, Ajay Singh infused fresh funds and managerial capability.

Shortly after the re-entry of Singh, the airline started recovering the lost ground. SpiceJet posted three consecutive quarters of profit and is currently in the process of expanding its capacity.

Ajay Singh said in an earlier interview with BW Businessworld that a better understanding of the market and his familiarity with the industry inside helped the revival. The market value of SpiceJet more than tripled after the new management under Singh took over.

Another struggling airline, Jet Airways –the country’s largest premium carrier - also saw the return of profitability after the new CEO Cramer Ball initiated a three-year restructuring programme with key focus on increasing cost efficiency. Since then, the airline posted profits for two consecutive quarters after a gap of at least eight years.

Indian’s largest economy carrier IndiGo made the investor outlook completely changed on the country’s aviation sector with it most successful IPO in November. Its Rs 3,018 crore public issue, which was over-subscribed by 4.95 times, became the biggest in the last three years on Indian bourses.

This IPO also became a big booster for the industry as it helped building investor confidence and could benefit other airlines such as SpiceJet and Go Air, which have plans to tap the capital market to repay debts and fund their expansion.

This year’s financial turnaround was not limited to the private players alone. National carrier Air India too became hopeful of making an operational profit during this financial year. Air India, which is now getting aggressive on quality service and cost efficient operation models, in October said it will post operating profit of Rs.6 crore for the financial year.

Passenger Advantage
Besides competitive pricing and passenger benefit schemes announced by the airlines, the year also saw some real market intervention by the regulator for the advantage of the flyers. The pricing regulator, Competition Commission of India (CCI) penalised three key player Jet Airways, IndiGo and SpiceJet for indulging in anti-competitive practices, although the airlines may consider challenging the order.