Airports developer GVK Power & Infrastructure Ltd has teamed up with a domestic carrier to launch a new airline to capitalize on the country’s aviation and airports boom, focusing especially on 35 tier-II city airports across the country where airports are up for modernization bids.
The proposed airline will connect the district capitals of various states to their state capitals or the nearest metro using small aircraft that seat around 70 passengers or less. The company said it would launch the airline service only in states where it wins bids to develop airports.
“We have already tied up with a domestic liner whose name I would not like to disclose,” said G.V. Krishna Reddy, chairman and managing director, GVK Power, in an interview with Mint.
“While they (the domestic carrier) will do the flying, we will handle all the management functions (of the airport) while someone else may handle the commercial operations,” he added.
Reddy said his firm had already “established an understanding” with some other companies for this. According to people familiar with the situation, GVK could be one of the companies that General Electric Co. is speaking to for developing various airports that are being thrown open to the private sector for upgradation and development .
Reddy said GVK would float a new joint venture firm along with its partners to develop the airports and operate the airline. Reddy declined to further elaborate on the new company’s operations.
GVK is already modernizing India’s busiest airport, Chhatrapati Shivaji International Airport at Mumbai, along with Airports Company South Africa and the Bidvest Group. It had earlier formed Mumbai International Airport Pvt. Ltd (MIAL), a joint venture company owned by the GVK-led consortium (74%) and Airports Authority of India (26%).
The Centre for Asia Pacific Aviation’s Delhi-based analyst Kapil Kaul suggested the airport operator may be considering launching a non-scheduled operation. Non-scheduled airlines, also called charter airlines, cannot offer scheduled flights between destinations.
“They might be looking at a non-scheduled operation because under the current agreement as an airport manager they cannot have a majority investment in a scheduled airline,” he added. The infrastructure company can hold only about 10% in a scheduled airline, he said.
At present, there are 14 scheduled carriers in the country as against three times that number for non-scheduled operators. State-owned carrier Pawan Hans Helicopters Ltd, which started chopper services in 1985, was the last company to be awarded a scheduled passenger licence last week.
More than a dozen proposals for similar permits are pending with the government, which has been slow to release them owing to the lack of infrastructure at most metro airports that are unable to meet the extra passenger load.
Some industry players reacted adversely to the GVK initiative, which they believe will lead to even more overcrowding. “You are causing a traffic jam,” said Jeh Wadia, managing director of the Mumbai-based low-cost carrier Go Airlines (India) Pvt. Ltd, by allowing more players in the existing competitive aviation market.
“There should not be any new licences issued for the next two years. They (the government) should instead ensure how the existing airlines will be able to sustain themselves. If there are more players then a seat cost of, say, Rs3,000 will go up to Rs3,200 because the aircraft will hover more due to congestion, there would be less parking bays and so on. The (existing) airlines will collapse,” he added.
Recent policy changes have sought to provide incentives to promote non-charter operations. Accepting a proposal of the civil aviation ministry, on 3 May the government allowed duty free import of aircraft for non-scheduled point-to-point and non-scheduled charter operators.
Reddy believes the new company will provide an option to the people living in small towns to fly.
“If the people in the districts have this facility, they will go in the morning to metros and come back in the evening,” Reddy said. He added that the airline could use “something like an ATR, which seats 70 people.”
“Every state wants to develop their airports, including Maharashtra, Andhra Pradesh, Karnataka, Gujarat, among others. While some of them will enter into a memorandum of understanding, some will call for bids. Either way, we are open to it. I will bid for all of them. It is for them to decide,” Reddy said.
GVK Power has interests in airports, power, roads, services and posted a Rs1,200 crore turnover and a net profit of Rs250 crore in 2006-07. “We are hopeful of posting a turnover of Rs2,000 crore in the current financial year and double our profit to Rs500 crore,” Reddy added.
(Tarun Shukla also contributed to this story.)