Hotels Ride On Aviation Boom

The current boom in the Indian aviation scenario is fuelling a parallel growth in the nation's hotel sector. Express Hotelier & Caterer takes a look at the growing aviation segment.

Today, the industries of tourism and hospitality in India are going places owing to a boom in the aviation sector. The unprecedented revolution in the airline industry is opening skies to private carriers, driving down ticket prices, giving foreign airlines an unmatched access to one of the world's fastest-growing markets and providing much travel options to both the domestic and international traveller than there exited before.

Picture Perfect: Aviation Boom

The explosion in Indian air travel is driven by a booming economy, a rapidly growing middle class and increased deregulation. Not a week passes without one airline or another coming out with announcements on introducing new routes or expanding services on existing routes. The liberalised policy has also been permitting airline companies in India to expand operations both within and outside the country.

Air Traffic Booming

Despite the nation's population of more than a billion people, it has just 165 commercial planes. The United States, which has about 300 million people, has about 6,000 commercial airliners. But India is changing rapidly, emerging as one of the fastest-growing markets. Air traffic in India has been growing rapidly, adding around 275,000 passenger seats in 2004, and it is expected to add more than 325,000 in 2005. Even aircraft manufacturers are working out their strategies for India and to that effect, Boeing itself has revised its projections upward. Barely six months ago, it projected its business in India would reach US$ 20 billion within 20 years. Now, the company is saying it will grow to US$ 35 billion in that time.

Route Expansion

After a gap of nearly 15 years, one witnesses tremendous activity at state-owned Air-India and Indian Airlines. Inept and poor political leadership, lack of resources and the absence of new policy initiatives have bedeviled these airlines. All these seem to have been pushed back in the last couple of years. Both companies have been busy planning major fleet expansions. Boldly going for lease options, these state-owned airlines are preparing themselves to win a good stake of the present boom in air travel. Air-India posed impressive plans for its no-frill subsidiary, Air-India Express that offers attractive introductory fares to countries in the Gulf from Delhi, Mumbai and Kerala.

Recently, Britain and India agreed to more than double air flights on existing routes between the two nations and open up lucrative new services to Indian cities. A similar deal was signed between India and the US. Jet Airways, India's largest domestic carrier, announced that passenger traffic would increase by 15-18 per cent this year.

The boom in the Indian aviation industry has boosted the fortunes of international aircraft leasing companies, whose business in India has tripled over the last two years. Almost every airline, public or private, is taking the lease route to raise capacity in the shortest possible time. Benefits of operating leases include lower cash outlays to preserve working capital, the flexibility to increase or reduce capacity quickly and the ability to induct new aircraft models with no need for pre-delivery payments.

Lufthansa, is the perfect example for being the most successful in capturing emerging opportunities. Bangalore and Hyderabad in the South have been receiving a lot more attention well before the new airports in these cities have taken shape. Lufthansa and Saudi Arabian Airlines have introduced new flights from Hyderabad. Asian, European and Middle Eastern airlines are already ramping up flights to India. Britain's Virgin Atlantic Group even hopes to buy a stake in an Indian carrier, although civil aviation authorities have yet to permit such investments.

New Carriers…New Options

With more competitors flocking to the India market, prices of tickets for domestic and international travel are plummeting. As Air Deccan has upped the ante with a Re 1 flying offer, Kingfisher Airlines, that has started services on the Mumbai-Bangalore route recently, is talking of becoming the number one domestic airline by 2010. With the announcement of the UB Group's foray in the Indian aviation industry, Kingfisher Airlines has already become a force to reckon with. After Kingfisher Airlines, the rank of budget airlines will have other new entrants like Magic Air and SpiceJet that have already commenced service in May and took the industry by surprise with its Red Hot Rs 99 offer, Go Air and Air One in the coming months. Last but not the least is the re-launch of East West Airline, after almost a decade. The Airline hopes to take wings again by the end of this year and is in the process of renewing its license soon. It is in talks with Boeing and Airbus for buying aircraft, and with two foreign investors to raise US$ 50 million to US$ 60 million in the next two years. Further, according to the Centre for Asia Pacific Aviation, the new low-cost airlines will help add at least five million new passengers every year taking the total number of air travellers to 50 million by 2010.

Open Skies - The After-Effects

One of the arguments for the open skies policy is that it will lead to huge benefits for tourism. A November 30, 2003 government-appointed committee report titled 'A Roadmap For The Civil Aviation Sector' unequivocally states: 'The international air transport segment is inexorably moving towards liberalisation, particularly at the regional and sub-regional levels. Even within bilaterals, which continue to be a dominant form of regulating international air transport, many of the recent agreements and amendments are reported to contain some features of liberalisation. Many countries have unilaterally opted for liberal air transport policies, often based on a broader perspective of national interest, including economic development and trade benefits.'

If Asia's fourth-largest economy is poised to grow significantly over the next five years then even the most conservative analysts predict massive growth in India's air travel market. India, and the wider Asian air travel market represent an opportunity that most airlines are grasping with both hands. Competition will be intense, with new domestic airlines pitching in.

The Challenges Ahead

The aviation ministry, which till very recently was henpecked by the industry for its obdurate stance on deregulation, is now receiving shouts of support for not going too fast too soon. Aviation experts forecast that India's annual passenger load will hit 50 million by 2010. International travel to and from India is soaring at a 20 per cent annual clip. According to the International Air Transport Association (IATA), international airline passenger numbers are set to grow by six per cent year-on-year till 2008. The key driver for the growth would be the economic expansion in India and China. Cargo volume is also likely to be up by six per cent annually over the 2004-08 period. The growth, however, will strain airports and other infrastructure. Though some changes in the management of airport infrastructure have been initiated, India still has a long way to go.

Airport Apathy

Liberalisation and restructuring of airport infrastructure is going to be a far more complex and difficult task than the restructuring of air services. Nearly every aspect of services, from runway maintenance to air-traffic control and baggage handing, needs huge upgrades to cope with bigger demand. The government has earmarked US$ 3 billion to upgrade main gateway airports at Mumbai and New Delhi, and as much as US$ 300 million to build airports at Bangalore and Hyderabad.

V Thulasidas, chairman and managing director, Air-India, takes first guard, "An increase in the international airline seat capacity to and from India is no doubt good for the promotion of tourism. However, this is only one of the facilities required and unless it is supported by other infrastructure facilities like adequate number of hotel rooms, good airports, tourist friendly procedures, good roads and rail connectivity, overall cleanliness etc. An increase in the number of airline seats alone cannot lead to more tourist travel." Therefore, the immediate need of the hour is not so much to start new airlines so much as to develop the airports infrastructure.

He further points out that many of the competing airlines are more interested in exploiting the Indian travel market and not necessarily promoting international tourist travels into India. "What we need is a carefully orchestrated and balanced plan for opening up the international travel sector with adequate emphasis on the growth plans of Air-India. Allowing more foreign airline capacity into India or alternatively permitting domestic airlines to fly international routes need not be the only solution for increasing the international air travel capacity," he adds.

Tourism Reality Check

Qatar Airways CEO, Akbar Al Baker insists that the open skies policies are key to developing the aviation industry in the country and so too, tourism, since airlines are the chief delivery system of the tourism policy of any country. "There are approximately 30 million Indians staying abroad while only 35 million seats have been allocated through the sale of traffic rights of which 17.5 million are utilised leaving a huge gap in supply of seats even for NRIs and expatriates wanting to visit India. These traffic rights include countries that do not operate into India while additional seats are not being granted on high-density routes," he says.

ATC Woes

Air traffic in the Indian skies is set to grow exponentially in the near future. This has already begun to expose the weaknesses of the Indian air traffic control (ATC) and air navigation system. Long queues of aircraft waiting to take off or land have become a common occurrence at every major airport in the country. This is the area where the government's attention should focus without delay. Says K Roy Paul, former secretary-civil aviation, government of India, "Air traffic control systems in India used to be as good as the best in the world. Now, although it has not deteriorated, it has failed to keep pace with the rest of the world. This happened because the air traffic system, which used to be part of DGCA, is now managed entirely by Airports Authority. There is no monitoring or regulation by an outside agency because DGCA does not have an expert in this field. To rectify this situation, the regulatory role of DGCA has to be restored in this area."

The Hub Factor

Ronojoy Datta, president, Air Sahara, who was a part of the US aviation industry for 17 years leaving as president, United Airlines feels that firstly India needs to develop itself into a hub before elevating itself to the next echelon. "The biggest tragedy for India is that it only provides the feed. India does not have a hub, which is a huge loss for the country. Frankfurt, Dubai and Singapore are constantly taking traffic out of India, consolidating it and then taking it forward. There is no financial centre between London and Singapore. This huge economic terrain should belong to India but its failure to develop as an aviation hub has been overlooked. Hubs like Frankfurt and Chicago can generate US$ 35 billion for the local economy. That is the kind of potential India is sitting on," he says. While considering the cost factor, one finds that 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.

On the other hand, Ashwini Kakkar, CMD, Thomas Cook India, believes that 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.

LCC - Not An Easy Task

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 despairing ignorance from the government in so much as creating a parallel cost regime that recognises the minimal framework these airlines operate within.

Trade Dilemma

Last but definitely not the least is the hot debate between airline and agents on the commission structures. Globally, the current scenario hotting up where airlines and agents are at loggerhead over the zero commission regime, in many a developing market and India is on the hit list at the moment. While the agents' boycott of Air-India did little to move the airline, a bit of history was created when non-IATA association (ETAA) was invited by TAAI and TAFI on a single platform to institute a united stand against the airlines. Further according to industry sources, the joint committee that was subsequently formed could well usher the formation of a consolidated association of IATA and non-IATA agents. Moving on a current note, the issue has been resolved to a certain extent with the committee that has been formed, resolved to push commission stand for Gulf carriers to July and a freeze on the commission paid for the next four years.

Taking the above-mentioned factors into consideration, the aviation industry is definitely in a confused situation where one good deed…gives rise to not another but many unknown hurdles. Surely exciting times for India all around with great business opportunities. But will it miss the bus is the question? Will hospitality also loose out on account of this uncertainty as air travel is one of the prime propellers of growth?