capa india aviation outlook2012 13 highlights
TRANSCRIPT
-
7/29/2019 CAPA India Aviation Outlook2012 13 Highlights
1/15
PPreparedby
ExtractsfromtheCAPAIndiaAviationOutlookFY2012/13Ayearofcriticaluncertainty
PreparedbyCAPAResearch&MarketAnalysis
www.capaindia.com
INDIA
-
7/29/2019 CAPA India Aviation Outlook2012 13 Highlights
2/15
-
7/29/2019 CAPA India Aviation Outlook2012 13 Highlights
3/15
1
ExtractsfromCAPAIndiaAviationOutlookFY2012/13
INDIA
Contents
CAPAIndiaOutlook2012/13:CriticalUncertaintyPrevails....................................................................2
CAPAexpects
domestic
capacity
growth
of
78%
in
FY2012/13
........................................................
2
CAPAprojectsdomestictrafficgrowthof810%inFY2012/13.........................................................2
IndiasairlinesexpectedtopostacombinedlossofUS$1.31.4billion.............................................2
JetAirwaystobeprimarybeneficiaryofmarketdynamics................................................................3
Significantcostchallenges,especiallysustainedhighfuelandaweakRupee...................................3
AirIndiacouldfaceatemporaryshutdownduetomassiveHRissues..............................................4
KingfisherAirlinesrevivalcompletelydependentonforeignairlineinvestment.............................4
Expectationsforapositivedecisiononforeignairlinesraised,dashedandthendelayed................5
JetAirways
expected
to
place
amassive
fleet
order
in
2012/13
.......................................................
5
AirportsAuthorityofIndialikelytoleadgreenfieldairportdevelopment.........................................5
Industryregulatorremainsstretched,increasingsafetyrisks............................................................6
CrisisinaviationsectorcallsforboldandpragmaticleadershipbytheGovernmentofIndia..........6
InternationalOutlook2012/13:SomeSurprisesAhead.........................................................................7
CAPAexpectsinternationaltrafficgrowthof810%inFY2012/13....................................................7
ForeigncarriersremaininterestedintheIndiastorydespitechallenges..........................................8
JetAirwaystoleadlonghaulexpansionbyIndiancarriers.................................................................9
AirIndia
crisis
may
trigger
liberalisation
...........................................................................................
10
Foreignairlineinvestmentandliberalisation,theperfectstormforGulfcarriers...........................10
StarAlliancelikelytogainitsfirstIndianmember....JetAirways.....................................................10
A380mayfinallymakeitsdebutinIndia..........................................................................................11
Butairportsarebecomingincreasinglyexpensive...........................................................................11
AndtheEuropeanUnionETSaddsfurthertocosts.........................................................................11
Transparencyandviability,andnotprotection,areinIndiasnationalinterests............................11
-
7/29/2019 CAPA India Aviation Outlook2012 13 Highlights
4/15
2
ExtractsfromCAPAIndiaAviationOutlookFY2012/13
INDIA
CAPA India Outlook 2012/13: Critical Uncertainty Prevails
Indian aviation is facing its most uncertain phase in more than a decade. After reporting an
estimated record loss ofjust over US$2 billion1 in the 12 months ended 31 March 2012, Indias
airlines are facing an equally challenging year ahead. Weak balance sheets, increasing costs,
regulatoryuncertainty,asluggishIndianeconomyandadifficultglobalenvironmentwillcontinueto
pile the pressure onairlines, especially the poorer performing carriers.However, this may in turn
create market opportunities to exploit for those that are better positioned. Some of the key
highlightsoftheCAPAIndiaOutlook2012/13,tobereleasedon31May2012,arepresentedbelow.
Thefull80+pageCAPA IndiaAviationOutlook2012/13offersthemostdetailed insight intothedirectionofthesectoratthiscriticaljuncture.Toorderyourcopy,pleaseusetheformonthelastpageorcontactBinitSomaiaonbs@centreforaviation.comor+61292413200.SpecialdiscountsareavailableforCAPAMembersandforadvancepurchases.
CAPA expects domestic capacity growth of 7-8% in FY2012/13
TwelvemonthsagoCAPAsforecastforIndiandomestictrafficinFY2011/12wasforgrowthof17%,
theactualoutcomewas15.1%,withthelowergrowthaccountedforbythedownsizingbyKingfisher
towardstheendofthefinancialyear.
InFY2012/13 Indiancarriersareexpected toaddapproximately24aircraftduringtheyear,which
includes8Q400stobe inductedbySpiceJet.Thiscorrespondstotheequivalentof20narrowbody
aircraftondomesticroutes.CAPAestimatesthiswhichwouldresultincapacitygrowthof78%ina
bestcasescenario.Thisprojectiondoesnottake intoaccountthepossibilityofexceptionalevents
such
as
a
scenario
involving
further
capacity
reduction
by
Kingfisher
Airlines
or
where
Air
Indias
operationsareseverelyimpactedbyindustrialaction.
CAPA projects domestic traffic growth of 8-10% in FY2012/13
CAPA estimates that domestic passenger traffic will grow by 810% in FY12/13 and more likely
towardsthelowerendoftherange.Muchwilldependupontheimpactofoilpricesandotherinput
costsonairfares.Upsidegrowthislimitedbythefactthatcapacityexpansionwillbemeasured,and
with load factors already quite strong there is limited opportunity to grow traffic through higher
occupancies.
Indias airlines expected to post a combined loss of US$1.3-1.4 billion
Inthe12monthsending31March2013,AirIndiaisonceagainexpectedtobetheworstperformer
intheindustryandtoreportalossofINR70billion(USD1.3billion).KingfisherAirlinesisprojectedto
loseINR1214billion(USD220260million).However,theremainingfourprivatecarrierscombined
couldpostamodestprofitofapproximatelyINR11billion(USD200million).
1IntheCAPAIndiaMidYearOutlookforFY2011/12,publishedinJune2011,CAPAhadforecastacombined
industry
loss
of
US$2.5
billion
based
on
an
exchange
rate
of
INR45
to
US$1.
The
actual
INR
result
for
the
year
wasaspertheCAPAforecasthoweverduetothedepreciationoftheRupeebymorethan20%theloss
reportedinUSDisnowapproximatelyUS$2billion.
-
7/29/2019 CAPA India Aviation Outlook2012 13 Highlights
5/15
3
ExtractsfromCAPAIndiaAviationOutlookFY2012/13
INDIA
Theseestimatesarebasedonassumptions for the wholeyearofanaverageBrentCrudepriceof
USD120125/barrel, and an exchange rate of INR5152 to the USD. Due to the current and trade
accountdeficits,weakcapitalinflowsandsafehavenflowstotheUSdollarasaresultoftheEUdebt
crisis,thereexiststheprospectthattheRupeecoulddepreciatetoaslowasINR60intheabsenceof
ReserveBankofIndiaintervention.AsidefromotherUSdollardenominatedcosts,thiswillserveto
further
compound
the
impact
of
high
oil
prices.
However,
in
our
base
case
we
assume
that
the
Rupee remains in an INR5456 range for the next three to six months and appreciates by 810%
thereafter,averagingoutat INR5152.Thevolatilityof theexchange rate is akeyconcern for the
yearahead.
Jet Airways to be primary beneficiary of market dynamics
AlthoughthetroublesfacingAirIndiaandKingfisherAirlineshavebeenpositiveforalloftheother
carriers,JetAirwayshasbeen,andwillcontinuetobe,thelargestbeneficiary.Kingfishersdramatic
contraction from66to16operationalaircraft,ofwhichhalfare regionalATRaircraft,has leftthe
domestic
business
market
open
for
Jet
Airways.
Similarly
the
temporary
industrial
action
on
Air
IndiaslonghaulinternationalrouteshasdrivenNorthAmericanandUKtraffictoJetAirways.
ThereductionincapacityarisingfromreducedflyingbyAirIndiaandKingfisherhasalreadyresulted
in quite substantial increases in yield of 1012% in Q4 of FY12, and an estimated 1215% in the
currentquarter,Q1ofFY13.Allotherthingsbeingequalthisshouldhaveresultedinanincreasein
CAPAsprofitoutlookfortheprivatecarriers,howevertheyield improvementsarenegatedbythe
extremelychallengingcostenvironmentandsupplysideconstraints
Significant cost challenges, especially sustained high fuel and a weak RupeeIndiascarrierswillfaceadeterioratingcostenvironment inFY12/13onanumberoffronts.These
include:
1. Fuel prices: a high, and more importantly sustained high, oil price environment. Thereremainsapossibilitythatoilpricescouldrisesubstantially witheffectfromJuly2012should
theEuropeanUnionproceedwithplanstointroduceanembargoonoilsuppliesfromIran;
2. Weakcurrency:furtherdepreciationoftheRupee,whichhasalreadyfallenmorethan20%inthelast12months,therebypushingupthepriceofdollardenominatedcostssuchasfuel,
aircraftleases,maintenanceandoffshoreinterestobligations;
3. Airport charges: the regulator has already approved a 334% increase in charges at DelhiAirport,withMumbaiexpectedtobeallowedtoraisefeesbyanevenhigheramountofup
to 500%. Combing these additional levies is likely to have the impact of increasing Delhi
Mumbaiairfaresby1520%whichwillhaveanegative impacton traffic. Increasedairport
chargesareexpectedtobeprogressively introducedatotherairportssuchasChennaiand
Kolkatatofundthemodernisationprograms;
4. Servicetax:theextensionoftheservicetaxregimeoneconomyclassairfaresfromafixedamounttoanadvalorempercentagewillincreasetheabsoluteleveloftheimpostonmost
sectors.
-
7/29/2019 CAPA India Aviation Outlook2012 13 Highlights
6/15
4
ExtractsfromCAPAIndiaAviationOutlookFY2012/13
INDIA
Air India could face a temporary shutdown due to massive HR issues
Theflagcarrierwhichcontinuestoflounder,operatinganunviablebusinessmodelthatiskeptalive
bythegenerosityofIndiastaxpayers,isexpectedtoenteradefiningperiod.Themergerbetween
Air India and Indian Airlines is defined by the fact that the most critical issue, namely that of the
integration
of
human
resources
has
been
ineptly
handled
and
almost
willfully
ignored,
with
nobody
withintheairlineseniormanagementoratthelevelofthegovernmenthavingtakenresponsibility.
This has been a constant source of tension within employee ranks and after years of neglect a
committeewasestablished in2011under JusticeDharmadhikarito look intostaffgrievances.The
committeesubmitteditsreporttotheMinistryofCivilAviationinearly2012.Intheabsenceofany
strategyofitsowntodealwiththeissuesathand,thegovernmentisleftwithvirtuallynooptionbut
toimplementthereportsrecommendations.
Althoughtheproposedactionshavenotyetbeenmadepublic,CAPAexpectsthattheoutcomeswill
meetwithamixedresponsefromtheunionsandindustrialactionislikely.Thegovernmentappears
to
be
preparing
to
adopt
a
firm
stance,
limiting
discussions
with
the
unions
and
it
may
not
shy
away
fromawatershedmomentinthenext23monthsafterthereportisacceptedbythegovernment,
whichcouldincludeatemporaryshutdownoftheairline.
Butakeyconcern isthefactthatatthiscriticaljuncturethemanagementatAirIndiacouldbeset
forchangeatthemostseniorlevels,includingthepositionofChairmanandManagingDirector.The
newteamcouldbefacedwithahighlychargedandcomplexsituation.SimilarlytheBoardhasnot
beenstrengthenedfollowingacoupleofhighprofilenonexecutivedepartureslastyear,whilethere
willbenewappointmentsinanumberofseniorgovernmentrolesaswell.
AllofthisfurthercompoundsthefactthatthereisnobodytakingownershipoftheturnaroundofAir
India,which in itself isunrealisticandunachievablewithoutresolutionofthepersonnel issues.For
the last two years CAPA has strongly advocated that Air India should be placed in special
administration,similartothatadoptedforSatyam,ifanymeaningfulprogressistobeachieved.
Kingfisher Airlines revival completely dependent on foreign airline investmentbeing permitted
Facingseverefinancialdifficulties,Kingfisherhasdeliberatelydownsizedoverthelastsixmonthsto
conservecashandhasnowdeclinedtobecome Indiassmallestdomesticairlinebymarketshare.
CAPAestimatesthatKingfisherhasafundingrequirementofclosetoUSD1billion,ofwhichUSD500
600million
is
needed
immediately
and
afurther
USD300
400
million
in
the
next
fiscal
year.
The airline is surviving on the basis of bare minimum infusions by the promoter, while it seeks
externalinvestors.Sofarthereisnoknownseriousinterestandthelongerittakesthemoredifficult
it will become to turn the airline around. The most likely suitor for Kingfisher is thought to be a
strategicforeignairlineinvestor.Currentregulationsprohibitinvestmentbyforeignairlinesalthough
a proposal topermit49% is currentlyunder consideration.Kingfisher appears tobe holdingon in
anticipation of the restriction being lifted however the timing of such a development remains
uncertain.
-
7/29/2019 CAPA India Aviation Outlook2012 13 Highlights
7/15
5
ExtractsfromCAPAIndiaAviationOutlookFY2012/13
INDIA
Expectations for a positive decision on foreign airlines raised, dashed andthen delayed
In January2012 the Ministry ofCivil Aviationgave its strongest support to date for a proposal to
permitforeignairlineinvestmentofupto49%.ThiswassupportedbyaGroupofMinistersmeeting
the
following
month,
which
agreed
to
submit
a
note
to
Cabinet
in
favour
of
the
move.
It
was
presented as virtually a fait accompli. But subsequently it became apparent that there was some
resistanceattheCabinetlevelandthedecisionhasalreadybeendeferredacoupleoftimesandmay
bedelayedfurther.Theredoesremainaslimchancethatitmaybeapprovedshortlyaftertheclose
ofthecurrentparliamentarysessionattheendofMay2012,butpubliclyraisingandthendashing
expectations of an imminent change in regulations is a poor way to play with the industry. The
government should instead have consulted privately and more widely with key stakeholders to
understandthepossiblereactionandthepossibilityofmovingahead.
However,iftherestrictionislifted,SpiceJet,GoAirandKingfisherarethemostlikelycandidatesto
seekforeignairlineinvestorswithSpiceJetarguablythemostattractiveofthethree.Thelongerthat
approvalisdelayedthemoredamagingitwillbeforKingfisher.
CAPAexpects that the investorsmostseriouslyconsideringopportunities in India includetheGulf
carrierssuchasEmirates,Etihad,QatarAirways,althoughotherssuchasInternationalAirlinesGroup
arealsobelievedtobeactivelywatchingthemarket.Removaloftherestrictiononforeignairlines
couldinfactopenupastrategicpartnershipopportunityforAirIndiashouldthegovernmentwishto
pursuesuchanapproach.
Jet Airways expected to place a massive fleet order for up to 100 narrowbody
aircraft in 2012/13As noted, Jet Airways has been the main beneficiary of the negative situation at Air India and
Kingfisher.Despitethecarriersownweakness, itmaydecidetotakeadvantageofthesituationto
expand both domestically and internationally as it had done in 1996 when a number of its
competitorshadcloseddown.
CAPAexpectsJetAirwayscouldplacea largenarrowbodyorderforover100aircraft inFY12/13to
meetbothreplacementandgrowthrequirements.Theairlineisunderstoodtobeactivelyevaluating
theA320neosandit isalsolikelyto leaseupto10A330stosupporttheexpansionof itsEuropean
routenetwork.
Airports Authority of India likely to lead greenfield airport development
Theneedfortheconstructionofnewairport infrastructureremainsunabated ifIndia istoachieve
its long term potential. However, questions are emerging about the most appropriate source of
fundingforthelargescalecapexrequired.
The publicprivate partnership model that has been adopted for the modernisation of Delhi,
Mumbai, Bangalore and Hyderabad Airports has resulted in dramatically improved infrastructure.
Butthereisagrowingpolitical,industryandcommunitybacklashagainstthecorrespondingincrease
in
charges
that
are
being
introduced
in
order
to
generate
a
return
on
capital
for
the
private
-
7/29/2019 CAPA India Aviation Outlook2012 13 Highlights
8/15
6
ExtractsfromCAPAIndiaAviationOutlookFY2012/13
INDIA
investors.Thisiscompoundedbytheoveralluncertaintyaboutgovernanceissueswithinthecurrent
administration.
Asaresult,furtherairportprivatisationislikelytoslowandtheAirportsAuthorityofIndiamayonce
againbecomeresponsiblefor leadingfuturegreenfielddevelopment,especiallyatairportssuchas
Chennai.
The
exception
to
this
in
the
shortterm
is
that
the
second
airport
in
Mumbai
at
Navi
Mumbai,islikelytobeapursuedonapublicprivatepartnershipbasis.
Industry regulator remains stretched, increasing safety risks
The Directorate General of Civil Aviation (DGCA) continues to remain extremely resource
constrained,withinsufficientmanpowerandexpertise,whichinagrowingmarketisincreasingthe
riskprofile.CAPAbelievesthatresultantsafetyconcernscouldleadtheFAAtoonceagainthreaten,
asitdidin2009,todowngradeIndiatoaCategory2nation.OnthatoccasiontheDGCAsecuredthe
necessary budget to invest in the required manpower, however there has been limited progress
sincethen
despite
the
fact
that
the
sector
has
grown
significantly.
Plans
to
establish
aunified
and
independentregulatorintheformofanIndianCivilAviationAuthorityaremovingslowly.Achange
inleadershipattheregulatorisalsoapossibility.
Crisis in aviation sector calls for bold and pragmatic leadership by theGovernment of India
DuetoitspreoccupationwithAirIndiatheMinistryofCivilAviationhaslimitedresourcestofocus
onbroaderindustryissues.Asaresultthepolicyandregulatoryframeworkisweakandmisaligned
withtherequirementsofthe industry.Thishasbeenclearlyhighlightedduringthecurrentcrisisas
thegovernment
has
been
able
to
deliver
little
of
substance
to
assist
the
sector.
The current Minister for Civil Aviation, who has been in the role for six months, has grasped and
acknowledgedthechallengesfacingthesectorfarbetterthanhispredecessor,andhisstatements
demonstrateafocusonfundamentalissuessuchasairlineviability.Howevertodatetherehasbeen
nosubstantiveprogressondevelopingacomprehensiveandrobustnewcivilaviationpolicy.Andthe
paceisonlylikelytobeinterruptedfurtherbyupcomingchangesinseniorroleswithintheMinistry.
Adhoc interventionmay have beenworkable tenyearsagowhen thesectorwas a fractionof its
currentsizebut it isno longeracceptable foran industry thathandles160millionpassengersper
annumand
in
which
its
core
constituents,
the
airlines,
have
atotal
debt
burden
of
US$16
17
billion,
whichcouldincreasetoUS$20billionwithinthenext1218months.Airportshaveadditionaldebtof
US$2.53 billion while Indian banks and financial institutions have a massive exposure of US$910
billiontotheaviationsector.
An industryofthisscaleandwithsuchwidespreadeconomicmultiplierenablingeffectscannotbe
heldhostagetoinconsistentandunpredictablepolicyandregulation.However,theMinistryofCivil
Aviation ishamperedbecausemanyofthekeyfiscalandpolicyreformsthatcouldactuallyhavea
positive impact on the industry are outside of its purview. Aviation requires bold and pragmatic
leadershipatthistimeofcrisiswhichmeansthatkeydecisionsneedtobetakenatthelevelofthe
Governmentof
India
and
not
just
at
the
Ministry.
-
7/29/2019 CAPA India Aviation Outlook2012 13 Highlights
9/15
7
ExtractsfromCAPAIndiaAviationOutlookFY2012/13
INDIA
International Outlook 2012/13: Some Surprises Ahead
WhiletheIndianaviationsectorhasbeenthroughvariousupsanddownssincetheintroductionof
major reforms in 2003/04, international traffic has been the steady performer, growing at a
compound annual rateof 11.8% over the last eightyears. Even during the economic downturn in
2008/09, when domestic traffic registered a double digit decline, international traffic remained in
positiveterritory,growingat6%.
InternationalPassengersNumbersatIndianAirportsFY04toFY12
Source:CAPA,
Airports
Authority
of
India
FY2012/13willbeachallenginganduncertainyear for Indiasaviationsectoroverall.However, in
international operations, which are expected to see steady growth. CAPA foresees a number of
developmentswhichcouldsurpriseandredefinethesector.
CAPA expects international traffic growth of 8-10% in FY2012/13
Internationalpassengertrafficisprojectedtogrowby810%inFY2012/13toreachover44million.
However,
much
will
depend
upon
developments
at
Air
India,
which
has
the
largest
share
of
internationalcapacityto/fromIndiaat14.4%.Ifthefailuretoaddresshumanresourcesissuesleads
to ongoing industrial action and even a possible temporary shutdown of the carrier, there would
undoubtedlybeanimpactontrafficgrowth.
ShorthaulinternationaltrafficgrowthtoSouthandSoutheastAsia,aswellastheGulfandCentral
Asia isexpectedtobeabove10%asIndiGoandSpiceJetrampuptheiroverseasoperations.GoAir
hasalsoappliedforpermissionto launch internationalservices,despitethefactthat ithasnotyet
metthequalificationthresholdofhavingafleetofatleast20aircraft(ithasjusttwelve).However,
itsapplicationislikelytobeapproved.MeanwhileJetAirwaysmayalsodeployitshybridsubsidiary,
JetKonnect,
to
develop
its
regional
international
network.
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
5
10
15
20
25
30
35
40
45
FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12
Annualinternationalpax(millions)
InternationalPassengers YoYGrowth
-
7/29/2019 CAPA India Aviation Outlook2012 13 Highlights
10/15
8
ExtractsfromCAPAIndiaAviationOutlookFY2012/13
INDIA
Capacity growth is likely to be in single digits as the foreign carriers that are most interested in
expandingtheiroperationssuchasEmirates,QatarAirwaysandTurkishAirlineshaveexhausted
theirbilateralentitlements.TheIndiangovernmenthasindicatedthatitisnotpreparedtoliberalise
furtheruntilsuchtimeasIndiancarriershavealsoutilisedtheirentitlements.
Onthe
Indian
side
the
most
robust
international
expansion
will
be
seen
by
Jet
Airways
on
longhaul
routesandbyIndiGoandSpiceJetonregionalinternationalsectorsofupto45hoursduration.The
exceptionsareSpiceJetsproposedservicestoGuangzhouandHongKong,whichexceed5.5hours.
Inadditiontoallocatingdedicatedaircrafttointernationaloperations,theLCCswillalsobeableto
increasetheutilisationoftheirexistingdomesticaircraftbydeployingthemoninternationalroutes
overnight.
IndiGos expansion will focus on proven routes from Delhi, Mumbai and other metro cities to
Bangkok, Dubai and Singapore. SpiceJet on the other hand, aside from Bangkok, Hong Kong and
Singapore, isevaluating lesserserveddestinationssuchasAlmaty,Kabul,HanoiandTehran.Other
destinationsthat
could
be
considered
include
Guangzhou,
Macau,
Male,
Tashkent
and
Yangon.
Indianprivatecarriershavesubmittedrequestswiththegovernmenttouseanadditional130,000
seatsperweekfromexistingbilateralentitlementsontheIndiansideasoutlinedbelow:
SpiceJet: 66,000weeklyseats; JetAirways: 24,000weeklyseats; IndiGo: 20,000weeklyseats; Kingfisher: 20,000weeklyseats.
Someof
these
applications
have
recently
been
granted.
Foreign carriers remain interested in the India story despite challenges
In the last few months a number of carriers have either suspended services to India (including
AirAsiaX, American Airlines and Qantas) or reduced frequencies on certain routes (Air France,
AustrianandLufthansa).JetAirwaysrecentlyannouncedplanstosuspenditsMumbaiJohannesburg
servicefromJun12.Reasonsforthesereductionshave includedinsufficienttraffic,pooryieldsand
highairportcharges.
Asidefrom
AirAsiaX,
these
are
largely
carriers
that
face
strong
competition
from
sixth
freedom
Gulf
andAsiancarriersonroutesto/fromIndia.AirAsiaXswithdrawalwasinpartduetotheweaknessof
itsdirectdistributionstrategyintheIndianmarketwhichcouldnotsupportthecapacitygenerated
by11weeklywidebodyservicesintoKualaLumpur.
Butforeveryairlinethathasfacedchallenges,thereareseveralincumbentcarriersthatseegrowth
opportunities,primarilythosefromemergingregionssuchasAsia,AfricaandtheMiddleEast,with
examplesincluding:
DragonairhasannouncedplanstolaunchservicestoKolkatafromNov12; EtihadwilllaunchanAbuDhabiAhmedabadserviceseffectiveNov12; VirginAtlanticwillberesumingLondonMumbaiservicesfromOct12;
-
7/29/2019 CAPA India Aviation Outlook2012 13 Highlights
11/15
9
ExtractsfromCAPAIndiaAviationOutlookFY2012/13
INDIA
KenyaAirwayscommencedanonstopNairobiDelhiserviceinMay12; AirChinalaunchedaChengduMumbaiserviceinMay12; IraqiAirwayslaunchedroutesfromBaghdadtoDelhiandMumbaiinQ1; bmicommencedaLondonAmritsarserviceinOct11; SilkAirlaunchedanewSingaporeKolkatarouteinAug11; SingaporeAirlineshaslaunchedfiveadditionalfrequenciestoMumbaiinthelastyear.
Virgin Atlantic will benefit from the suspension of Kingfishers MumbaiLondon operation, and is
planningtoscheduletheservicesoastofacilitateconvenientonwardconnectionstoatleastfourUS
destinations.TheairlineisexpectedtoemergeasanimportantplayeronMumbaiUKandMumbai
USroutes.
MeanwhileAfrica isaregionofgrowing interest.KenyaAirways,which launched itssecond Indian
destination (Delhi) in May12, has already identified Ahmedabad, Bangalore, Chennai and
Hyderabadascitiesthatitplanstoexpandtooverthenextfewyears.EthiopianAirlineshassimilar
expansionplans
and
has
suggested
that
its
Addis
Ababa
hub
could
play
an
important
role
in
carrying
trafficbetweenIndiaandSouthAmerica.
SeveralairlinesthatdonotcurrentlyoperatetoIndiaareunderstoodtobeevaluatingthepossibility
ofenteringthemarketinthenext1224months,theseinclude:
Europe:AlitaliaandCzechAirlines; Asia:GarudaIndonesia,JetstarAsia,LionAir,MyanmarAirwaysandVietnamAirlines; Africa:AirAustral.
Butit
is
carriers
such
as
Emirates,
Qatar
Airways
and
Turkish
Airlines
that
have
the
most
aggressive
expansion plans and are pushing for additional bilaterals as their current entitlements are
exhausted.Emirates,thelargestforeigncarrierinIndia,alreadyoperates184weeklyservicestoten
cities across India, not including its low cost subsidiary, flyDubai. Turkish Airlines, which has daily
servicetoMumbaiandDelhi, isseekingto increasethesetodoubledailyandwishestooperateto
an additional six destinations. Singapore Airlines and Cathay Pacific are also expected to seek
increasedrights.
Jet Airways to lead longhaul expansion by Indian carriers
WithKingfishers
international
operations
suspended
and
Air
Indias
longhaul
services
likely
to
be
subject to ongoing industrial action, Jet Airways is expected to seize the opportunity and
aggressively expand its international operations. In addition to increasing frequencies to existing
destinationsintheGulfandSoutheastAsia,othernewroutesunderevaluationinclude:
Asia:Beijing,HoChiMinhCity,Shanghai; Europe:Amsterdam,Frankfurt,Munich,ParisandRome(withFrankfurtandMunichbeing
theprioritydestinations,expectedtocommencefromtheWinter2012/13schedule);
USA:Chicago,SanFranciscoandWashington; Pacific:Sydneymayevenbeconsidered.
-
7/29/2019 CAPA India Aviation Outlook2012 13 Highlights
12/15
10
ExtractsfromCAPAIndiaAviationOutlookFY2012/13
INDIA
Air India crisis may trigger liberalisation
Therehasbeena freezeongrantingnewbilateralstoforeigncarrierssince2008,howevertheAir
Indiacrisiscouldturnouttobethetriggerthatleadstoaresumptionofliberalisation.Thiswouldbe
similartowhathappenedin2004whenitbecameapparentthattheinterestsofthenationwerefar
greater
than
those
of
an
individual
airline.
At
that
time
the
position
adopted
was
that
preventing
foreign carriers from serving the market simply because Air India did not have the corresponding
ability to grow inflicted a huge economic cost on the country due to missed business, trade and
tourismactivity.
CAPA expects that aprolongedcrisisatAir Indiawill lead toasimilarconclusionandasignificant
opening up of Indias bilateral agreements. If this occurs, it will indicate that the government has
decidedthatprotectingAirIndiaisnolongerinthenationalinterest.
Foreign airline investment and liberalisation, the perfect storm for Gulf carriers
The current crisis in Indian aviation could create the environment in which previously difficult
decisions could move ahead. If foreign airline investment of up to 49% was permitted and
simultaneously bilaterals were significantly increased, Gulf carriers such as Emirates, Etihad and
Qatar Airways could establisha critical advantage in the Indian market, creating a quasidomestic
markettofeedtheirhubs.
Star Alliance likely to gain its first Indian member....Jet Airways
InDecember2007 theBoardof StarAlliance invited Air India to becomeamemberandafter3.5
years,thelongestqualificationprocessanyairlinehadtakentopreparetojoin,thealliancedeclared
thatthecarrierhadfailedtomeetrequirementsformembership.
Meanwhile, Jet Airways was also invited by Star, however the Government of India had declared
thatitcouldnotproceeduntilAirIndiahadbeeninducted.AirIndiasongoingproblemsmeanthat
thisrestrictionmakeseven lesssensethan itdidbeforeandthismay forcethegovernmenttore
thinkitsposition.ThiswouldpavethewayforJetAirwaystobecomethefirstIndiancarriertojoina
globalalliance.ItsplanstoserviceFrankfurtandMunicharelinkedtothisstrategicdevelopment.
If Jet Airways was tojoin Star Alliance the other global alliances will have to reevaluate their
options. Oneworld has a memberelect in Kingfisher but given its uncertain future (and the
possibilityof
acquisition
by
an
airline
either
from
acompeting
alliance
or
opposed
to
alliances)
this
is
nottheidealstrategicplatforminsuchanimportantmarket.
SkyTeamisunderstoodtohaveshownsomeinterestinIndiGo,whichwouldprovideverystrongand
complementary domestic and regional feed, without threatening the longhaul services of the
incumbent SkyTeammembers. Inmanywaysan idealpartner,but IndiGos lowcostbusinessand
operating model might not permit the linkages and complexities that would be required to
participateinaglobalalliance.JetspositionasthemostsuitableIndianpartnerforaglobalalliance
providesitwithastrongnegotiatingpositionwithitspreferredStarAlliance.
-
7/29/2019 CAPA India Aviation Outlook2012 13 Highlights
13/15
11
ExtractsfromCAPAIndiaAviationOutlookFY2012/13
INDIA
A380 may finally make its debut in India
With a view to protecting Air India the government has to date rejected applications by foreign
carriers seeking to deploy the A380 on services to India. However, this approach becomes
increasingly untenableas themarket runsshortofcapacity,especiallyatslotconstrainedairports
such
as
Mumbai.
The
A380,
starting
with
Emirates,
may
therefore
finally
make
its
scheduled
debut
in
Indianskiesthisyear. AsandwhenanIndiancarrierisinductedintotheStarAlliance,permissionis
alsoexpectedtobegrantedtoLufthansaandSingaporeAirlinestocommenceA380operations.
But airports are becoming increasingly expensive
With Delhi Airport having been given permission by the economic regulator to increase airport
charges and passengers fees by 334%, and Mumbai expected to be allowed an increase of 500%,
airlineswillbecomeincreasinglyvocalintheiropposition.Itisunlikelythatanycarrierwillreduceor
suspendservicesasadirect result,however it may lead toa reevaluationof the rateof planned
expansion.Europeancarriers,whicharefeelingtheimpactofeconomicweaknessintheircorehome
markets,are
the
most
sensitive
to
increases
in
costs
and
the
consequent
impact
on
demand.
And the European Union ETS adds further to costs
Indialedagroupofmorethan20countriesthatstronglyopposedtheintroductionoftheEuropean
UnionsEmissions TradingScheme. However, asof May12 it appears as thoughonly theChinese
and Indian carriers are refusing to comply with the requirement to submit emissions data. The
matterhasgrownbeyondtheaviationsectorandhasbecomeatradeanddiplomaticissuebetween
theGovernmentofIndiaandtheEuropeanUnion.
Transparency and viability, and not protection, are in Indias national interests
Indiawillcomeunder continued pressure from foreign airlinesand their governments to increase
marketaccess,withbilateralsbeinglinkedtobroadertradeandstrategicgeopoliticalissues.
Atpresent Indiadoesnothaveaclearstrategywithrespecttobilaterals.Theyarenationalassets
and should be handled in a manner that maximises Indias economic and strategic interests.
ProtectingIndiancarriersmaynotnecessarilybethebestoutcome.Thegovernmentshouldconduct
anassessmentoftheabilityofallIndiancarrierstoexpandoverthenextfiveyearsbearinginmind
theirfinancialsituation,andcomparethiswiththecapacityrequirementsoftheeconomy.Foreign
carriers should be permitted to expand to provide the balance. Bilateral access in the case of
marketswhicharedominatedbysixthfreedomtrafficcouldbetiedtoairlineallocatingbudgetsto
promoteIndiaasatouristdestination.
Meanwhile,usingAir Indiaasasmokescreentoclosebilaterals,stopJetAirways fromjoiningStar
Allianceand prevent foreign carriers from deployingA380son Indian routes is not in thenational
interest.ThefocusshouldinsteadbeonmakingIndiancarriers,especiallyAirIndia,competitiveand
viable.CAPAthereforecallsforanopenandtransparentpolicyforinternationaloperations.
Thefull80+pageCAPA IndiaAviationOutlook2012/13offersthemostdetailed insight intothedirectionofthesectoratthiscriticaljuncture.Toorderyourcopy,pleaseusetheformonthelastpageorcontactBinitSomaiaonbs@centreforaviation.comor+61292413200.SpecialdiscountsareavailableforCAPAMembersandforadvancepurchases.
-
7/29/2019 CAPA India Aviation Outlook2012 13 Highlights
14/15
-
7/29/2019 CAPA India Aviation Outlook2012 13 Highlights
15/15