CAPA India Aviation Outlook2012 13 Highlights

7/29/2019 CAPA India Aviation Outlook2012 13 Highlights

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PPreparedby

ExtractsfromtheCAPAIndiaAviationOutlookFY2012/13Ayearofcriticaluncertainty

PreparedbyCAPAResearch&MarketAnalysis

www.capaindia.com

INDIA


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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


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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.


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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.


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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.


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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


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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.


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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


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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;


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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.


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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.


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11


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.


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Documents

CAPA India Aviation Outlook2012 13 Highlights