The Non-Flag Carriers
The internal airways of India, Pakistan and Nepal are in ferment as infant carriers grapple for a toehold in a market that might just expand beyond all expectation.
The domestic airways of all major South Asian countries have been opened to some degree in the rush of liberalisation, and you would expect that big commercial houses would be into airlines by now. Not so. They are all playing safe, waiting for the smaller players who have jumped in to open up the market so that they can come on strong.
The story is the same in each country of South Asia: private operators are regarded as unwelcome pariahs by the civil aviation directorates and the entrenched state air corporations, but, given enough leeway, they end up proving that there is a market and that it can expand if airlines are run like businesses rather than bureaucracies.
The most dynamic private airlines are to be found in India, Nepal and Pakistan, in that order. Sri Lanka has a couple of small airlines, but they have been grounded for security reasons since September 1995, and the government is using some of their aircraft to maintain the air bridge to Jaffna peninsula. As for Bangladesh, there was a scramble for operating licences after the the government, in 1992, decided to allow small planes to fly in the private sector. However, there is only one private operator, Aero Bengal Airlines, which flies twice-weekly from Dhaka to Barisal on the coast.
Nepal was a pioneer in opening up domestic airways, when a particularly astute and well-connected adviser to the Ministry of Tourism provided the required political push in 1991. As a result, domestic airline passengers today fly on time, on Avros, Dorniers and Mil7 helicopters. The lobbying power of the private sector to extract maximum concessions from a reluctant government was seen when the Sherpa-owned Asian Helicopters was able to override security objections of even the army to fly choppers to remote airstrips.
But the private airlines have met insurmountable barriers when they have applied for international routes from the government, and Nepal´s limited airspace and passenger traffic means that the market is pretty much saturated with supply. One of the more successful private carriers, Necon Air, says it has now captured 45 percent of the market on Nepal´s trunk routes and it would like to serve Nepal-India feeder routes such as Biratnagar-Bagdora-Calcutta, or Bhairawa-Lucknow. Not pinning hopes on bilateral talks, however, the airline has gone into a joint venture tie-up with Bengal Air Services to help the airline link towns in India´s Northeast.
In Pakistan, PIA´s lockhold on domestic routes has given privatisation a bumpy ride. "The highflyers are not active because PIA has a monopoly," says one airline analyst. Domestic skies were opened in 1992, and the Civil Aviation Authority awarded licences to 17 operators. The first to take to the air was Hajveri Airlines, which brought in two Russian widebodies. However, the fuel-guzzling Il-86s proved uneconomical and the airline ceased operation. Bhoja Air has just resumed operations with its Yak-42s after suspending operations for a year.
It is Shaheeen Airlines, however, that is doing the best with its Boeing 737s and MD-83 aircraft. Shaheen does well primarily because it is a "subsidiary" of the Pakistan Air Force. The airline is allowed to use the term "flag carrier", was given a five-year tax holiday when it started, and has access to the Air Force´s infrastructure and ex-Air Force personnel. Besides the main metros of Pakistan, which the other private airlines also serve, Shaheen Air has been allowed to fly internationally: Peshawar-Dubai.
The largest domestic aviation pie, however, is India. Originally allowed to fly euphemistically as "air taxi operators", who could not advertise their schedules, the competitors of Indian Airlines have now become legitimate "airlines". The Indian airspace is so large, and the potential for expansion so great, that both Airbus and Boeing are waiting for the domestics to begin ordering new aircraft.
Indian Domestics
Indian airports are now abuzz with the colourful tail fins of new airlines. The arena is also marked by extreme rivalry, much mud-slinging, and threats of corporate takeovers. For the moment, the operators are hemmed in by regulations, high cost of flying second-generation aircraft on lease, and aviation fuel which is said to be the highest priced in the world. On average, the short-haul jets, mostly Boeing 737s, have to be 76 percent full just to breakeven.
Says a senior official with Jet Airways, the carrier which was named Most Preferred Airline of 1995 in a passenger survey, "A typical airline budget breaks down to 45 percent cost of aircraft, 15 percent fuel, 15 percent spares and maintenance and 10 percent government tax. So, there is little room for maneuvre when the fixed costs are 85 to 90 percent."
Indian civil aviation authorities have divided the country´s air space into categories: I for metro cities, II for hilly regions, III the rest of the country. An airline which flies one major route in Category I, is bound to fly 50 percent of seat/km ratio in Category III and ten percent in Category II.
Why then do private airlines continue to fly under such market conditions and regulatory restrictions? They are preparing for what they hope will be a sharp upturn in the market. The optimistic, such as Kapil Kaul, Vice President (Marketing) of East West Airways, believe that the airline industry will ride the wave of economic boom that is expected after the Indian general elections in late April.
Domestic airlines have differing strategies to become and remain solvent while awaiting that market upturn. The strategy adopted by NEPC, the aggressive Madras-based conglomerate, has been to gobble up rivals. In January, it took over Damania Airways and later made an abortive attempt on Modiluft, the airline which would actually like to be taken over by Lufthansa.
Sahara Airlines is the only private airline to have had a fatal crash, a training flight involving no passenger deaths. As its comeback strategy, the airline plans to branch out into feeder routes since it considers the main metro links saturated. "We are pioneering the hub and spoke arrangement with helicopters and small fixed wing aircraft," says Sanjay Bahadur, Chief Manager of Sahara. Mr Bahadur believes that despite the government´s protectionist attitude towards Indian Airlines, "the private operators will come at par with IA within a decade."
East West Airlines, which saw a public relations disaster with the murder in January of its Chief Executive and talk of underworld links, has decided to go in for a corporate restructuring and development of new strategy with the help of the consulting firm Price Waterhouse.
Says East West´s Mr Kaul: "We intend to take advantage of the capacity gap that has been left by the inadequate service of Air India and Indian Airlines. My airline would be able to fly international routes within three months of the government giving the go-ahead."
Besides the larger domestics, India also has smaller private operators who serve "Category II" routes, such as Archana Airways. Its proprietor Aditya Bhartiya says Archana has preferred to stay small, and profitable, unlike the over-extended airlines which insist on linking the big metros. Jagsons is another small player, with a fleet of three Dornier 228s serving Himachal Pradesh and Rajasthan.
UP Air has the distinction of being the first private airline owned by a state government. Started in April last year with the outright purchase of a Fokker F-50, the airline receives assistance in terms of free parking, subsidised fuel and credit from the Lucknow government. This could well be a trend, with Tamil Nadu and West Bengal both interested in starting their own airlines.
In the end, all private operators in South Asia are waiting for the other foot to fall. They can handle the national flag carriers—it is the "big houses" they are worried about, who they know will elbow in with massive bucks and managerial talent once they think the time is right and the ground prepared.
In India, private carriers are waiting nervously for the long-delayed Singapore Airlines-Tata joint venture to enter the airfield. The tie-up was thumbed down once by the Director General of Civil Aviation, but as long as the market is there it does not look as if SIA-Tata will lose interest. Airline experts feel that they might make a move after the April elections, depending on which way the wind sock swings.