My first job with TajSATS air-catering brought me very close to
aviation industry as I use to be the coordinator for American Airlines
catering operations. During this time I saw metamorphisis of Air Deccan
into LCC giant and also Jet Airways taking over Sahara Airlines. But
during that time I was just seeing with no opinion as in two years I saw
(100 meters away from main Airstrip) countless jet take-offs' but not
even once I felt bored.
After 6 years seeing the pity condition of UB's Kingfisher airlines, I would like to bring your attention on two not so visible variables pivotally affecting the Indian Aviation Industry.
I. Government Policy not favorable to Indian Aviation industry.
-- I will not go into details as I am not specialist for this but the most important part ie fuel tax ATF in India is highest with 30% which makes the air fuel very costly in India. Globally the average tax on ATF is ~14%-15%.
--I will again not state the government policies but will try to correlate the same with the condition of private airlines in India. After open skies policy in 1993, Jet Airways, Sahara Airlines, Damania Airlines, ModiLuft came into existence. Damania and Modiluft got closed by end of 21st century. Sahara Airlines due to accumulated losses was took over by Jet Airways in 2006 end but since then Jet Airways balance sheet is bleeding red.
--In 2002-03 South-west Airlines business model was replicated by Air-Deccan. In the same time and lines many other airlines namely spice jet, go air,indigo, paramount came into existence. But except for Indigo (is the profit worth discussed below) all are posting losses year on year. Currently, the depressing status of Kingfisher airlines is continuing the story stated from day 1of open sky policy by Indian government.
-- So key point I want to put across is that there is certainly a big magnitude correlation between Government policy for aviation industry and state of Private airlines. Government must certainly frame salubrious policies to ensure that airlines in Indian sky survive and do well in terms of revenues and growth.
II. Indian Demographics:
--India is the second largest populated country with 85% of population with $2 income per day. It is a country with internet penetration of <5%. Just think market avaialble for cost intensive airline travel. I think these numbers were more acute when air-deccan started (2002-03) and they tried to a replicate a model of south-west airlines. In the same time, herd follow approach was followed by more airlines . But South-west airlines was successful in an economy which is 20 times more than India.
--I think low-cost carrier does not actually exist in India.probably after few years things will improve---> A prime reason fo the debacle of the LCC airlines.
III. Indigo success
--Without raising questions on excellent management of Indigo, I want to share this data:
Airbus A320--Lease rate--Minimum monthly lease rate: $2,750 * 250hrs = US$687,500*12 per year.
Cost of A320 = $70 million dollar.
Indigo has more than 50+ of these aircrafts operating.
--Net Profit posted by Indigo last year= INR 550crore. So relatively the numbers are not impressive when you are investing so much. It will take longer to reach break-even (we have not taken ATF, airport service cost, employess cost etc into consideration) and in a business cycle having recession period will only increase the number of years to break-even.
In a nut-shell I want to say that Aviation industry is glamorous and larger than life but the risk attached in terms of business success is very high. So the success here is the mutual responsibility of the government and airline management.
After 6 years seeing the pity condition of UB's Kingfisher airlines, I would like to bring your attention on two not so visible variables pivotally affecting the Indian Aviation Industry.
I. Government Policy not favorable to Indian Aviation industry.
-- I will not go into details as I am not specialist for this but the most important part ie fuel tax ATF in India is highest with 30% which makes the air fuel very costly in India. Globally the average tax on ATF is ~14%-15%.
--I will again not state the government policies but will try to correlate the same with the condition of private airlines in India. After open skies policy in 1993, Jet Airways, Sahara Airlines, Damania Airlines, ModiLuft came into existence. Damania and Modiluft got closed by end of 21st century. Sahara Airlines due to accumulated losses was took over by Jet Airways in 2006 end but since then Jet Airways balance sheet is bleeding red.
--In 2002-03 South-west Airlines business model was replicated by Air-Deccan. In the same time and lines many other airlines namely spice jet, go air,indigo, paramount came into existence. But except for Indigo (is the profit worth discussed below) all are posting losses year on year. Currently, the depressing status of Kingfisher airlines is continuing the story stated from day 1of open sky policy by Indian government.
-- So key point I want to put across is that there is certainly a big magnitude correlation between Government policy for aviation industry and state of Private airlines. Government must certainly frame salubrious policies to ensure that airlines in Indian sky survive and do well in terms of revenues and growth.
II. Indian Demographics:
--India is the second largest populated country with 85% of population with $2 income per day. It is a country with internet penetration of <5%. Just think market avaialble for cost intensive airline travel. I think these numbers were more acute when air-deccan started (2002-03) and they tried to a replicate a model of south-west airlines. In the same time, herd follow approach was followed by more airlines . But South-west airlines was successful in an economy which is 20 times more than India.
--I think low-cost carrier does not actually exist in India.probably after few years things will improve---> A prime reason fo the debacle of the LCC airlines.
III. Indigo success
--Without raising questions on excellent management of Indigo, I want to share this data:
Airbus A320--Lease rate--Minimum monthly lease rate: $2,750 * 250hrs = US$687,500*12 per year.
Cost of A320 = $70 million dollar.
Indigo has more than 50+ of these aircrafts operating.
--Net Profit posted by Indigo last year= INR 550crore. So relatively the numbers are not impressive when you are investing so much. It will take longer to reach break-even (we have not taken ATF, airport service cost, employess cost etc into consideration) and in a business cycle having recession period will only increase the number of years to break-even.
In a nut-shell I want to say that Aviation industry is glamorous and larger than life but the risk attached in terms of business success is very high. So the success here is the mutual responsibility of the government and airline management.
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