2013, a year of surprises for aviation industry

Even as the year is drawing to a close, 2013 has been a year of surprises and excitement for an otherwise struggling Indian civil aviation sector.

From a sense of gloom, the sentiment quickly changed to jubilation when foreign airlines lined up to throw a lifeline to troubled domestic carriers or applied for fresh applications to start new airline ventures with strong domestic partners.

Since 2006, India has not seen the launch of a major airline. Rather, three airlines – Kingfisher Airlines, Air Deccan (Kingfisher Red) and Paramount Airways – have shut shop, in the meantime. The last major airline that was launched in India was IndiGo in 2006, which has now grown into be the largest domestic carrier by market share.

Major highlights

The year saw the signing of the Jet Airways-Etihad Airways deal. Under the deal, the Abu Dhabi-based airline picked up 24 per cent stake in financially-strained Jet Airways for Rs. 2,058 crore. Apart from this, Etihad also paid $70 million to buy Jet’s airport slots at London Heathrow Airport. And, it has committed to invest another $150 million to buy out Jet’s frequent flier programme.

Etihad also agreed to procure funding worth $300 million to reduce Jet’s debt burden. This deal has come as a major saviour for Jet’s owner Naresh Goyal, who was always opposed to foreign airlines investing in Indian carriers.

Though it was Vijay Mallya, the owner of the grounded Kingfisher, who had lobbied hard for foreign direct investment (FDI) from overseas airlines in Indian carriers, an arch opponent of this policy Mr. Naresh Goyal turned out to be the first major beneficiary. The year also marked the grant of nearly three times bilateral traffic rights to Abu Dhabi by the Indian civil aviation ministry.

Tata Group

The year also saw AirAsia and the Tata Group queuing up to start two new airlines in India. While AirAsia has expressed its willingness to launch a Channai-based low cost carrier called AirAsia India in association with Tata Group and Arun Bhatia of Telestra, the Tatas surprised everyone by announcing plans to start a full service airline in India with their erstwhile partner Singapore Airlines.

“The easing of FDI norms last year will prove to be a game-changer. We witnessed the creation of two start-ups – Tata–Air Asia joint venture and Tata-SIA joint venture – and also equity investment in Jet Airways by Etihad. Recently, SpiceJet announced an interline agreement with Tiger Airways,” said Amber Dubey, Partner and Head-Aerospace and Defence at KPMG.

“The biggest event in 2014 will be the commencement or expansion of commercial operations by four global airlines — Etihad, AirAsia, Singapore Airlines and Tiger Airways — along with their Indian partners. We also expect one more FDI deal in an existing airline. All these will bring in global best practices, greater competition, better choices for passengers and lower fares,” Mr. Dubey said.

He said that the arrival of AirAsia India and Tata-SIA would shake the domestic market, bringing in more competition. The increased competition would boost regional and international connectivity, improve services and bring down fares.

“The Indian aviation industry has emerged as one of the top in the world with a massive movement not only in domestic and international sectors, but also the freight carriage. The sector has been going through a turbulence facing multiple headwinds which hindered its projected growth. Increase in oil prices, decline in passenger traffic and liquidity constraints jeopardised the finances of some airlines and drained their limited financial resources,” said Ankur Bhatia, Executive Director, Bird Group and Chairman of CII’s Core Committee on ‘Growth Potential of Civil Aviation Airports.

IndiGo does well

Most airlines continued to suffer losses but IndiGo announced a net profit of Rs. 700 crore, a record in its profitable growth. Air India also sharply improved its financial position following the restructuring of loans and fresh equity infusion from the Government of India. The national carrier improved its on-time performance and market share, a remarkable achievement from a team led by its Chairman Rohit Nandan.

Air India

The biggest achievement for Air India was the move of Star Alliance to reconsider its decision to allow the national carrier to join the grand alliance. This would further strengthen Air India. In 2013, Air India also decided to sell five of its fuel-guzzling Boeing 777s to Etihad for an unspecified amount.

SpiceJet witnessed the exit of its high profile CEO Neil Mills, while Sanjiv Kapoor came on board as its new COO. Go Air inducted more planes into its fleet, and reported higher market share. The year also witnessed the launch of a new airline Air Costa.

The rising cost of aviation fuel continued to pose challenges for the sector in 2013. Despite this, with FDI being allowed, Indian aviation sector could grow at the rate of 120-130 per cent as more international carriers would look at investing in domestic airlines.

The year 2013 was significant in the sense that passenger throughput grew by around 6 to 8 per cent. This growth is commendable given various challenges such as slowdown in the economy, devaluation of the rupee, increase in ATF prices, austerity measures by corporate sector and subdued demand from the tourist sector, said experts.

According to Mr. Dubey, the current times are definitely interesting but also highly challenging for the Indian aviation industry. Indian carriers have already lost about $ 1.6 billion in the financial year ended March 31, 2013. The year also witnessed Kingfisher reporting all time high losses, and reaching a stage of no return.

2013, a year of surprises for aviation industry