5 min read.Updated: 14 Dec 2018, 11:20 PM ISTRhik Kundu
India will, however, need to address several challenges that could delay its aviation growth story, says IATA's director general Alexandre de Juniac
Geneva: India is set to become the third largest aviation market by 2025, after the US and China, says the International Air Transport Association (IATA). The global airline industry body also expects Indian aviation to grow in double digits for the next few years, while most developed global economies are expected to see slower aviation growth.
India will, however, need to address several challenges that could delay its aviation growth story, including quickly building second airports and addressing related infrastructure needs at major cities, bringing down the high tax structure on jet fuel, MRO (maintenance, repair and overhaul) services, and other bottlenecks, IATA’s director general Alexandre de Juniac told Mint on the sidelines of a Global Media Day event recently. Edited excerpts from an interview:
What are the bottlenecks that need to be immediately addressed in India?
Airport capacity is a problem. In cities like Mumbai, you desperately need a second airport. Airlines also have an issue with costs. The taxation on fuel and the resulting fuel costs are too high and prevents higher growth for the sector. The financial health of many Indian airlines are not good. On top of that there’s a price war of sorts going on. Normally, I don’t comment on price wars because it’s anti-competitive. You have very very low prices in India, which is a fact. It, however, helps pushing the air traffic growth and is a strong stimulant for demand. But, it’s costly for airlines.
Do you think consolidation is the way forward for Indian airlines?
Consolidation has happened in the US, and there have been a few instances in Europe, too. However, consolidation is not happening in Asia. The main reason is the foreign ownership limitation in Asia.
IATA, however, has no position on this as our members are divided on this matter.
It’s a simple economic argument; however, if you have foreign ownership limitation, it’s an obstacle for international consolidation. But, saying so, FDI limitation in Indian aviation sector has improved, and it has allowed Singapore Airlines to start a joint venture in India. I understand the reason why governments have put up the FDI limitation, but from a practical economic point of view it is an obstacle to consolidation. If you look at the European example, consolidation happened within Europe only when the international barriers were lifted.
How long do you expect the price war to last?
If airlines are forced to implement a pricing policy, where you are losing money, it’s definitely a problem. It depends on how long airlines can continue with price wars. It is not the case with everyone, for instance Air India, which has the backing of the state, is in a better position than Jet Airways. According to IATA estimates, airlines in Asia-Pacific are expected to report profits to the tune of $10.4 billion in 2019. However, Indian airlines have fared badly this year. They will probably make a loss though most other airlines in the Asia-Pacific will report profit on falling oil prices. The $10-12 billion profits will come from China, Indonesia, Australia and other emerging countries in the region.
Jet Airways, Air India, Vistara are IATA members. Is any no-frills carrier from India planning to join IATA?
SpiceJet has requested to be member of IATA but I am not sure if they have signed already. At present, 13% of our members are LCCs (low-cost carriers). In recent years, a majority of our new joinees in Asia are LCCs. We have a lot of mid-size and small LCCs as members but not the big ones like EasyJet, Lion Air, AirAsia, Southwest, IndiGo (InterGlobe Aviation Ltd). I would like to have IndiGo as a member of IATA. We have a lot of low-cost airlines participating in technical working committees of IATA. Some of them are certified.
What are the issues you have flagged to Indian government?
We have requested the Indian government to abolish GST (goods and services tax) on international tickets, which is against the ICAO (International Civil Aviation Organization) rules. We have also asked the government to reduce taxes on aviation fuel. They have reduced a bit but more is needed to be done.
What steps has the Indian government taken?
The current government has done a few things like building second airport, lowering taxes, implementing regional connectivity. They have pushed infrastructure growth, but not as fast as we would like it to be. Overall, aviation has been one of the top priorities. But, if several of these measures were to be accelerated, it would be wonderful.
How long is India expected to hold the growth momentum?
We expect India to grow double digit for many years to come. The general rule around the world is that when people can afford to buy an airplane ticket, they fly. This is true in India, China and all over the world. And more people today in India and China can afford to fly. And this number will only increase.
The new engines are facing problems. This is because we are pushing the technology to its very limit. So, it’s not surprising. In next 20 years we will have new engines and new aircraft, which will have its set of new problems. When you are working with new technology, you have to take risks. It is surely an issue but I believe that this industry will eventually deal with it.
Though 2017 was relatively an accident-free when it came to air travel, we have had a few accidents in 2018. What is IATA’s position?
Our members don’t need us telling them to be aware of safety. We are advocating in favour of improving the reporting system of crashes. We are suggesting that IATA partner with safety agencies in investigating crashes. Having neutral operational point of view, and gathering the best experts could be useful. We will not reinvent the wheel, and we are not even saying we are better than the others in providing solutions but we can provide expertise which could be useful.
The writer was in Geneva at the invitation of IATA.