Still Seeking Freedom From High Operational Cost
It’s ‘freedom to fly’ sale time for all airlines in India now. Although this freedom to passengers is a sign of a typical competitive market, the fact remains that the industry is still struggling for freedom from the country’s highest operational cost structure.
A recent quote of Singapore Airline’s India head David Lim explains it all. “With fares falling rapidly, yields are falling for airlines and all airlines are suffering,” he said in a recent media interview adding that the industry is prepared for competition and for yields to continue to be under pressure.
Even as India emerging as one of the largest and fastest growing aviation markets in the world, the industry is still concerned about the heavy operational cost as taxes on fuel, taxes and other charges still the highest in India.
But the market competition forces the players in the crowding Indian skies to keep the fares low for survival. Singapore Airlines’ India joint venture Vistara too has announced the ‘freedom to fly’ low fare offer in August along with its rivals.
But, that doesn’t stop the industry expressing their deep concerns about the cost structure in the market and its key demand at the seventieth year of India’s freedom remained a relief from the high-cost structure.
“While Government concessions in the form of reduced taxes on fuel and other services can provide the sector with a much-needed relief in order to ensure and sustain profitability, lots still needs to be done,” said Amit Agarwal, chief financial officer and acting CEO, Jet Airways, the country’s largest full service airline, responding to a BW Businessworld query.
Other industry leaders and analysts also echoed the same.
“While India is poised to become the world’s third largest aviation market by 2020 and perhaps the largest by 2030 as projected by industry reports, it will continue to be a tough business for the airlines unless there is a rationalisation in basic costs levied on them including taxes on fuel and service charges,” said another senior industry leader, who doesn’t want to be identified.
The operating costs, especially the taxes, are pretty high in India. According to industry data, it’s among the highest in the world. Although the fuel costs have come down in the last few years, the government taxes are still high. The other costs, which are also comparatively very high in the country, comprises of office space, airport parking, ground handling, lounge among others.
“In India, every year you see a lot of escalation in costs, in office space, contract rates go up in parking, ground handling, lounge costs etc.,” says Lim of Singapore Airlines.
While operational costs remained the major concern and airlines are trying to achieve maximum cost efficiency to manage the same, ‘disproportionate’ access of overseas airlines to Indian skies is another issue that the domestic players are concerned with. This issue was recently flagged by Indigo, the country’s largest airline by market share.
“It is time for India to take back its fair share of international traffic and bring back this economic wealth to where it rightfully belongs,” alerts Aditya Ghosh, president and whole time director, Indigo.
According to Ghosh, India has allowed disproportionate access to some foreign airlines. "The massive hubs that these airlines built (there) have significantly benefited at the expense of India. As a consequence of this, India’s international air transportation hubs reside outside the geography of our country,” Ghosh expressed his concerns in a recent internal communication.
According to reports, India is expected to be one of the fastest growing economies in the world in 2017 with the pace expected to continue for the next couple of years. This brings in both traffic for business and leisure, providing an additional boost to the aviation sector in both inbound and outbound directions. While the government is trying to tackle the other biggest issues such as poor infrastructure and under penetration of the market by building new airports and enhancing rural connectivity, the hope that it still cherish is the freedom from the high-cost burden and a reasonable inter-market intervention.
