Thursday 6 September 2012

India’s aviation industry is reeling under losses.

Mumbai: Dinesh Keskar, senior vice-president for sales (Asia Pacific and India) for Boeing Co. of the US, is optimistic about the Indian market despite a slowing economy. On Wednesday, Keskar announced that Boeing projects India’s commercial aviation fleet will grow more than 4.5 times in size over the next 20 years and India will need 1,450 new airplanes worth $175 billion (around Rs. 10 trillion today).

In an interview, Keskar said domestic capacity and demand are balanced in India now and yields have improved significantly. Edited excerpts:

India’s aviation industry is reeling under losses. But your 20-year projection shows an increase in the number of planes for the Indian market.

Positive forecast: Keskar says India is projected to have the highest traffic growth rate in the world over the next 20 years, exceeding even that of China. Photo: Hemant Mishra/Mint.
This is not a forecast for a year, but for 20 years. Yes, there is an increase of 130 planes for the Indian market. The forecast is based on India’s GDP (gross domestic product) growth, followed by the discretionary income of growing middle class. There are at least 250 million middle class people in India with aspirations to fly. In 2011, only 60 million flew. If you consider a person has taken an average of 20 flights a year, only 15 million flew, which is little more than 1% of the total Indian population. Meanwhile, India is investing heavily on airport infrastructure and training of pilots.
What can go wrong?

The only thing that can dampen the growth is fuel price. The jet fuel prices in Mumbai for domestic airlines were Rs. 71,000 per kilolitre in August 2008 when slowdown was at its peak. But the fuel prices are same even now because of weak rupee. High fuel prices are a continuing concern with Indian domestic prices 50% higher than world averages.

Airlines in India are improving their financial performance due to improved yields and improved capacity management, although slowing GDP growth, high fuel prices and a weak rupee are continuing risks.

India is projected to have the highest traffic growth rate in the world over the next 20 years, exceeding even that of China.

So there is hope.

Boeing’s Keskar says the only thing that can dampen growth in the aviation sector is fuel prices. Mint’s P.R. Sanjai tells us more

Dinesh Keskar talks about the outlook for India’s airlines and the challenges ahead of them.

In the past one year, Kingfisher Airlines has decreased 69% capacity, creating a balance between domestic capacity and demand. Some airlines are catching profitability curve faster and some are not. In any case, we will not have the scene of airlines making billion dollar losses. It is always good to have single-digit growth with profitability than double-digit growth and huge losses.

First quarter for airlines was good and many posted profits.

Yes, yields of airlines have improved significantly and many posted profits. But we can’t treat this first quarter as a trend. One will have to wait for the coming quarters and how jet fuel prices are heading. In June 2012, the average fare for Mumbai-Delhi was Rs. 5,750 per ticket even as the fare required to break even was Rs. 6,000. The airlines are short of Rs. 250 to break even. With the latest fuel surcharge, I hope airlines will reach that break-even price.

Low-fare carriers are dominating India skies and many are opting for Airbus planes. Aren’t you losing market share? IndiGo has become the largest airline by passengers carried.

Certainly, low-fare carriers are stabilizing. But one should look at the deliveries of the aircraft. We are going to deliver 27 Boeing 787 planes and three Boeing 777 to Air India, 46 Boeing 737 planes and 10 Boeing 787s to Jet Airways and 31 Boeing 737 planes to SpiceJet.

The Boeing Company never faced even a single cancellation from the Indian market. Once the Dreamliners (Boeing 787) are into the market, it will replace other old long-haul planes. The 787 has the range and capability to deploy on many routes that include the Middle East, Europe, Asia and Australia. And all these will be at significantly lower operating costs.

Regarding IndiGo becoming the largest airline in India, let me say that market share is not everything. I don’t think Jet Airways’ Naresh Goyal is chasing market share. He has successfully deployed Boeing 737 on international routes. The moment you take out planes from domestic market, your market share declines. But one has to look at revenue share.

Since you brought out the Boeing 787 issue, when is the Air India getting the Dreamliners? Could you throw some light on the compensation package that the airline is being offered because of the delay in delivery of aircraft?

Three Boeing 787s are ready in Charleston for Air India. Pilots and engineers are ready there. It is a matter of days. I don’t want to disclose details of Air India compensation. Air India has got a fair and amicable compensation settlement from Boeing and the Indian government has approved the same.

SpiceJet has brought small Bombardier Q400 planes to connect smaller cities as metro routes are largely getting saturated. Boeing has no planes in this segment. Are you worried?

No. On the contrary, it will complement our big planes. Historically, routes are built with smaller planes. Once these smaller planes successfully operate and develop that regional market, it would require bigger planes like Boeing 737s. Meanwhile, the government is investing in improving the airport infrastructure.



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