May 18, 2007

On the right track

According to Goldman Sachs, the economic potential of Brazil, Russia, India, and China, or BRIC, is such that they may become among the four most dominant economies by 2050. Gour Kanjilal elaborates on the role that India can play in this thesis.

A liberalised civil aviation policy has made radical changes in the aviation sector during the last two years. The economic stimuli of airlines, airports and their direct affiliates can be judged by the number of jobs they have created not only in travel but also in other industries.

Demand for air transport is rising and new airlines are being launched every month. Indus Air, the tenth domestic airlines in India, has finally started operations. Apart from this, the fact that the Finance Ministry is considering a proposal to allow domestic airlines to hedge ATF has boosted the sector further. Currently, carriers are allowed to hedge ATF for international flights but are not allowed to do so for domestic operations. Since fuel accounts for 40 per cent of the total cost, airlines now feel confident that the move will allow it to stablise costs and check losses.

Another major breakthrough was allowing private operators of international airports in India the right to decide which company would supply ATF to airlines in their respective airports. Until recently, this was decided by the Airports Authority of India (AAI) but the government has decided it should have no role in restricting the market. The move is expected to spark fierce competition from private operators like Reliance, Essar and Shell.

Where the roads merge

The merger of Indian and Air India is a positive development. Both the airlines are now looking into the final details like branding and HR issues. It appears that post merger, there will be one full-service airline and one low-cost arm.

This development has to be seen from another angle, one of the national carriers spreading its wings to international routes where we could not utilise our rights to full capacity based on bilateral air traffic rights on international routes between India and other countries. These had been decided on the basis of reciprocity.

The actual utilisation of available rights on international sectors had remained heavily imbalanced - while the utilisation by foreign airlines is over 60 per cent whereas that of Air India/ Indian is around 40 per cent. Hence, there is a loss of business and tourism growth is restricted. The new policy imitative by the Government of India has led to the strengthening of Air India and Indian by acquisition of new aircraft and improved operational synergy between these two airlines. It has allowed eligible Indian scheduled carriers to operate on international routes and to follow Open Sky Policy aggressively without reciprocity contract as primary terms for operations.

Years 2005 and 2006 saw the Government of India approve additional traffic rights to committees like USA, UK, South Africa, and especially USA. Carriers are now authorised to operate to any airport in India. New flights from UK to India can cover new routes and even new destinations. This has opened up places like Hyderabad, Goa, Kochi and Nagpur. The increased availability of air seat capacity matches the growing demand for holiday destinations in India. Earlier, a lack of seat capacity was one of the bottleneck areas for development of India Tourism. But elimination of market control and fair competitive opportunities have shown positive results and have had a significant impact on growth and expansion of both trade and tourism. At least in tourism, it enabled the government to achieve average of 15 per cent year on growth.

Relaxed flying

It is understood that the eligibility norms for airlines seeking to fly abroad are also set to be relaxed. The government is planning to ease the entry norms to a minimum of three years of domestic operations from the current five years. Low-cost carrier Air Deccan may be the first to make use of relaxed norms since it completed three years in August 2006. Even Kingfisher may join the fray and that will create a strong competition to foreign carriers.

As indicated by Capt Gopinath, Air Deccan's subsidiary in Sri Lanka, Deccan Lanka, may start operations to Singapore, Malaysia, Thailand and Maldives as soon as certain issues are cleared. Kingfisher has already set up a fully-owned company in the US from where it plans to fly to India. Jet Airways has started its operations to Bangkok from Delhi and Kolkata. It plans to fly New York via Brussels around August 2007 and may add a second American city like San Francisco via Shanghai and have flights to Gulf destinations by early 2008.

Similarly, the civil aviation ministry has finalised the draft policy on ground handling, which seeks to bring in at least three players to offer services at airports across India. These airport operators could be private players like the GMR-run Dial or AAI. This is mainly to avoid monopoly and this policy is likely to create competition for state-owned carriers Air India and Indian, which have a strong presence in the ground handling segment. All this has thrown up plenty of opportunities for private investments in the Indian civil aviation scene. With such developments, India is now on a roll with a visibly strong economy and higher rates of GDP growth.

Incomparable India

The second powerful and visible scene of progress is global recognition. Ministry of Tourism's earlier campaigns were generic and lacked colour. Budget constraints were the main reason for a black and white format. Also, it was always a complex job to have one precise identity for a multicultural destination like India, where each state itself is a product. Incredible India was envisaged to bring a balance to this unique position.

The campaign in the mother brand focused on India as a journey of mind and soul, as a journey of self-fulfillment. This was further strengthened through public-private partnerships. The state governments joined in by developing special thematic products. The results of this branding effort are visible. Lonely Planet in a survey of 167 countries selected India as one of the five top destinations of the world. Even World Tourism Organisation has termed India as the fastest growing travel and tourism destination. Now, a lot of investments are pouring in with 100 per cent FDI regime in hospitality and hospital sectors. India is now on the right path for tourism progress.

Filed under Industry by Ashish Bagla