Industry Leaders In Dialogue at TravelWorld 2005

The Aviation Summit 2005 conducted at the recently concluded TravelWorld,saw heavyweights of the Indian aviation industry converge at a day-long session, that shed light on new age paradigms in this sector as well as outlined a SWOT analysis to cope with challenges that lay ahead. Bhisham Mansukhani presents a concise report

It is not often that one is caught off-guard by the neighbourhood cobbler sharing his dream about hopping onto an aircraft to vacation at a beach paradise in the vicinity, let alone have aviation as a commonplace subject of discussion.

And yet, it is closer to reality now than one would have earlier thought. Is this the long awaited metamorphosis of the Indian market, which could mirror the growth of aviation in the US, a country with the world`s biggest appetite for domestic air travel? With the government fuelling the growth of private domestic carriers and channeling a substantial amount of FDI to them, how can the hitherto protected twin national carriers sustain themselves and how viable is low cost aviation? Express Travel & Tourism brought together some of the industry`s finest minds to provide their perspective for the uncharted future.

Carrying A Historical Burden

Air-India and Indian Airlines have been the butt of many passenger jokes while at the same time, been held ransom to counts of dishonesty, red tapism and plain indecision from the government`s end, leaving them in the red, with receding route networks and stalled yet urgent fleet acquisition plans.

The current aviation minister, Praful Patel`s incessant reform of domestic aviation in the private domain has changed that scenario. Two thousand four hundred additional flights that add up to half a million seats from December to March speaks volumes of what liberalisation of the civil aviation sector can actually do.

Hence the question of the hour is what role will the national carriers play in such a scenario? The high-power panel of the first session of the Aviation Summit explored various avenues such as fleet expansion, network augmentation and addition of a new brand that will aid the national carriers in taking on the increased competition. Admitting that there had been a decline in Air-India`s (A-I) premium standing, V Thulasidas, CMD, Air-India argued, ``While fleets of other countries grew larger and stronger, A-I`s network shrank because of aging aircraft and no new acquisitions. However, he was quick to point out that A-I has now seriously started bracing itself for perceived future challenges.``

Thulasidas however also stressed on the positive aspects, mentioning the recent open sky agreement with the national carrier`s fleet acquisition plans.

Session II - Low Cost Vs No Frill Airlines: The Positioning Issue

Session III - Distribution Costs - An International Perspective K Roy Paul, former secretary civil aviation outlines the way ahead

Ajay Prasad, secretary, ministry of civil aviation, government of India, said, ``The government has in principle taken a decision to invest in airport infrastructure through public-private partnership. In this pattern the private consortium of strategic partners will hold 74 per cent of the equity, government agencies will hold 26 per cent share, while the private partners will have complete operational freedom to manage and run these airports on par with international standards. By August, strategic partners for the modernisation of the Delhi and Mumbai airports will be finalised.``

Stressing on the urgent need for restructuring and modernisation of the Mumbai and Delhi gateway airport, Prasad said, ``The Mumbai airport is faced with tremendous constraints and there is an urgent need for a new airport in Mumbai to supplement the existing and growing air traffic requirements. With quantum growth expected in the next five years, the existing airport will soon reach saturation point. The process of identifying the location for this second airport has already begun. The government has also taken the additional decision to develop 25 to 30 airports in other cities with latent tourism potential. Destinations shortlisted for this type of development include Ahmedabad, Bhubaneshwar, Srinagar and Patna.``

B K Ong, general manager - India, Singapore Airlines, commended saying, ``The greater initiative on part of the Indian government to kick-start in order to catch up by liberalising the skies and allowing more foreign carriers to start operating to India. The benefits will trickle down to the entire economy.`` Ong paid rich tribute to Air India, recalling that during Singapore Airline`s early days, some of its staff was sent to learn the ropes at Air India`s Mumbai office.

According to Ashwini Kakkar, CMD, Thomas Cook India, pointed out national carriers need to change with time if they have to survive. From controlling 70 per cent of world traffic two decades ago, national carriers are now left with only 10 per cent of the world business. He said, ``Security will be a major concern, larger expenses on this front has to be factored in.`` Bringing in the perspective of tourism he said that such increased frequency and seat capacity has brought down fares helping the country to save around US$ 10 billion annually.

Kakkar did not hesitate to criticize the government for reducing Mumbai to a spoke instead of developing a thriving hub. ``The government has allowed international airlines to take traffic out of India and usurping our hub by failing to develop adequate infrastructure,`` Kakkar lamented. He exhorted Air-India to push through with offloading its stake to investors in the capital markets.

Talking about Jet`s new role as a designated carrier Peter Luethi, COO Jet Airways, said though Jet will be flying on international routes, it will continue to strengthen its position in the domestic market by introducing 17 additional B737 aircraft over the next 24 months to meet the demand and increase mobility within the country. Luethi also made the point about the incumbence of airlines such as Jet Airways to promote India`s tourism product as it now had access to international markets, thereby boosting the cause of infrastructure development for the same.

Low Cost Carriers - A Struggle To Drive Down Costs

The verdict on the birth and subsequent maturity of low cost carriers (LCC) still has its jury out on a limb. While it is quite clear that for air travel in this country to become as commonplace a culture as is the case in the US, LCCs have to thrive and consolidate, their roadmap appears fraught with a disparing ignorance from the government in so much as creating a parallel cost regime which recognises the minimal framework these airlines operate within. The former secretary for civil aviation, K Roy Paul put things the resilience of low cost carriers into perspective by giving the example of the historic demise of Pan Am, once celebrated as America`s finest airline. ``There have been many recent demises in the industry across the Atlantic lately. Yet South West Airlines is still in operation and is, in fact, thriving. Easy Jet and Ryanair have been its successful European parallels. There will however be a bloodbath and there will be failures, even when this phenomenon plays out in India. The greatest saving in operation costs for LCCs is not just by cutting frills like hot meals but by improving efficiencies,`` K Roy Paul, former secretary civil aviation, government of India proffered.

Alex Wilcox, COO & President, Kingfisher Airlines cited his soon-to-be-operational airline, Kingfisher, to explain his concept of LCC, ``To understand the LCC, let`s talk about the first `C` ie cost. Let us consider the cost factor. Landing and parking charges in India are 70 per cent above the international benchmark. Aircraft Turbine Fuel (ATF) costs in the country are double that in any other country. Now how do we create and sustain a low cost business model in this unique environment. The only solution is enhanced yield management and quicker turnaround times,`` Wilcox said.

Wilcox was assertive about the impression of his airline, saying, ``I would categorise Kingfisher as a value carrier rather than a low cost carrier. We can still offer hot meals, in flight entertainment and kiosk check-ins at airports without compromising on cost management and we believe that the passenger is willing to pay a premium for these facilities not offered by our LCC counterparts.``

V Balakrishnan, CFO, Go Airlines, pointed to the statistics like the number of passengers that low cost carriers namely Easy Jet and Ryannair carried in 2004 - 25 million passengers each which translates into more than what all Indian domestic carriers flew altogether. ``A typical low cost carrier flies passengers for about an hour or two. The fundamental advantage that these airlines offer their passengers is a cheap fare and time utility in comparison to train travel,`` Balakrishnan asserted.

The present day Indian aviation market is one of a kind. At present the demand outstrips the supply. Jason Bitter, COO, SpiceJet took that as the cue for explaining the absolute low cost focus of his airline, Spicejet. ``The middle class is still patronising the railway utility. The development of some of the 400 airports in the country enlisting private participation is one of them. Speaking for Spice Jet, we want to target the lower middle class which is the fastest growing segment. We can either embrace the relative low cost carrier or an absolute low cost carrier.``

John Kuruvilla, chief revenue officer, Air Deccan on the other hand drew the distinction between low fare carriers and low cost carriers. ``Low fare carriers are not dropping their fares based on the reduced cost. Low cost carriers on the other hand worked on the fundamental of enhanced efficiency,`` Kuruvilla said. Air Deccan, he revealed, plans to rationalise costs and optimise revenues. ``We have deployed the internet for distribution which has saved us six per cent of operating costs. Our marketing and sales force is only 35 compared to some of our conventional competition, which is 600. All these avenues must be mobilised to control costs,`` he emphasised.

Travel Agents - Redefining Their Business Model

The session on distribution costs - an international perspective turned out to be a commission cut debate. The key question pondered was whether distribution costs could potentially redefine the role of a travel agent? And the verdict? Airlines need travel agents because still, at least in India, 95 per cent of the business is generated from travel agents.

As Rodney D Cruz, manager sales India, Delta Airlines puts it, ``Airlines need travel agents but they are looking at what components can be shaved away to reduce costs. So agents need to find a profitable business model.`` According to Raja Natesan, CEO and president, Galileo India, an increasing number of more technology tools that were available in the industry presently have compelled the agents to utilise them in order to increase value add to their services. ``Corporate travel agencies are evolving their business models to fully embrace the benefits of Internet-based travel services. Corporations and agencies are looking at technology to lower costs and improve productivity to have a healthy bottom line. Therefore, we need to find a solution wherein technology and agents can co-exist in so much as they are both equally important,`` he said.

Introducing an agents` perspective, Travel Express managing director, C V Prasad pointed out that cutting agent commission did not necessarily reduce distribution cost. Citing the example in the US, he said, ``Airlines pulled the commission cap on agents in 1995. But while airline distribution cost between 1989 and 1995 fell by 2.5 per cent, the same fell by a mere one per cent for the period between 1995 and 2001.``

Reacting to Natesan`s argument that agents abroad utilise technology to their benefit, Balbir Mayal, president, TAAI, pointed out, ``The Indian market has not matured like the West. Distribution costs cannot be reduced as it includes the cost of printing tickets, GDS, entertainment, etc. Further in India, only 10 per cent of business is generated through Internet sales.`` The debate ended on a positive note, with the conclusion that airlines and GDS companies should try to empower agents to utilise automation, while agents should be given time to remodel themselves to fit the new business model.

The Way Ahead

Summing up the aviation summit, K Roy Paul, said. ``The reform ball has been set rolling. I believe the consumer will be the king and every policy should be centred around the traveller.`` He candidly admitted that it was difficult to initiate reforms with ministers who failed to understand the need. Competition, according to him, is good for the growth of economy. ``Allowing private carriers to fly overseas created controversy that we are selling off the national carrier. But the past tradition of protecting government-owned carriers has changed. This competition will help the economy to grow,`` he said and went on to suggest that competition should be allowed in building airports as well. However, foreign airlines, he pointed out, should not be allowed to have equity participation in domestic airlines because it will hamper the business interest of our domestic carriers who need time to stabilise their operations. According to him, India`s air traffic control system (ATCS) leaves much to be desired. ``I came to know towards the end of my tenure that our air traffic control system is not on par with international standards. An efficient ATCS should be in place to improve air services,`` he concluded.

(With inputs from Anindita Chattopadhyay and Neeti Chopra, New Delhi