The Indian aviation sector has witnessed 11 per cent year on year growth over the past decade. However, the pace of growth slowed down in last nine months due to reasons such as high ATF and airport charges and Maintenance Repair Overhaul (MRO) costs, slow progress on airport projects, poor connectivity with Tier –II & III cities, loss of hub traffic to competing countries and severe shortage of competent talent pool, Amber Dubey, Director, Aerospace and Defence, KPMG, said at the SATTE Conference 2013, during a panel discussion on ‘Aviation in India – The way forward’. Other panelists in the session were Azhar Bin Hamid, Senior Regional Vice President, South Asia and Middle East, Malaysia Airlines and Gerard Brown, International Tourism Development Director, UBM Aviation, Routes. Highlighting the current status of the industry, Dubey stated that the last three months (October, November and December), which were supposed to be the recovery months for airlines due to the festive season, also witnessed a drastic decline.
Commenting on the high costs that the airlines have to incur in India, Dubey said that airlines need to consider MRO costs (which is at least 20 per cent of the cost of the entire aircraft operations). “Not a single aircraft in the commissioned fleet of any airline get their sophisticated checks done in India. The MRO has now become Maintenance Repair Overseas as Indian airlines go to countries such as Sri Lanka, Malaysia, Singapore and Dubai. This is because the taxes levied in India are so high that it makes more sense for them to get repair work done in those countries,” he said and suggested that the government needs to revive and rework the taxation policies. He emphasised that ATF must be listed as a declared good with a uniform four per cent service tax all over India and there should be a 10 year tax holiday for MRO besides regulatory clarity for airport tariffs. “The aviation industry needs to work in cahoots with various government ministries and industry bodies to work out cohesive policies and profitably sustainable business models,” he opined.
Gerard Brown finds it hard to believe that a high-growth market such as the Indian airline industry is unable to generate either profits or long term viability for itself like China, Brazil, South Africa and Russia have done. He highlighted that more Indians switch planes in Dubai than they do at all Indian airports combined which shows that Indians have greater confidence and consumer preference to foreign carriers than they do with their own airlines and airports. “Emirates is the de facto national airline for India and has held this position entirely through competitive product rather than any government intervention and regulation.”
Agreeing with him, Dubey said, “The whole concept of positioning India as a hub has been lost due to hundreds of regulatory issues airports face. A large bulk of Indians are travelling to foreign destinations out of Dubai and not India which is again due to the short sighted policies that have been followed over the years. Emirates has become as good as our national carrier. Indians prefer travelling via international transfer points and airlines due to their high dependability and quality along with low cost factor.”
According to Dubey, the aviation industry still has a long way to go. “We have a very strong hub strategy which is being conceptualised by the Ministry of Civil Aviation. Moreover, changes in the airport infrastructure and taxation are expected.” He also believes that selling below cost or measuring the company’s market share is not going to gain the airline any profits. Agreeing with Dubey, Hamid, said that that while the coming times will be ruled by structural corrections and low cost carriers driving on meticulous policies, it is unlikely for the airfares to come down. “The government must make fair tax and regulatory policies to facilitate the industry. If not, even if the airline wishes to stay in India, the policies and procedures will scare it away,” Hamid concluded.
