In recently announced statistics, the domestic market has increased 1.1% year-on-year in Mar-2012 to 4.87 million passengers. This is the slowest month of domestic passenger growth since May-2009 when passenger levels declined 4.4%. Passenger traffic increased 6.55% in 1Q2012 to 15.3 million. For 34 consecutive months the market has seen growth however it is the third month in the same period which has seen a single digit growth. There has been 16 months of double digit growth prior to that.
The drop in traffic can be directly attributed to the reduction in coverage by Kingfisher Airlines. Till such time, India's growth rate was among the highest in the world. India has seen a 16.5% compounded annual growth from 2004 - 05 till date. Domestically, number of flights per week increased from 8724 in 2006 to 12,107 in 2011 and the number of airports handling scheduled air services increased from 50 in 2000 to 82 in 2011. Total domestic passengers carried by all scheduled and non-scheduled operators have increased from 36.2 million in 2006/07 to 60.7 million in 2011 (calendar). Domestic traffic has increased by 96% since Mar-2006, with domestic traffic now 45% above Mar-2007 levels, 31% above Mar-2008 levels and 54% above Mar-2009 levels.
Given this background of a growing economy (even a 6% growth is good) it could have implied that the airline and related businesses are seeing a high. That unfortunately is further from the truth. Apart from the airlines, the related business which includes a) Airlines b) Airports c) Services like catering, ground handling etc. has been going through a strange quandary. While passenger numbers are growing, the losses are mounting. The joke is that 'in the airline business everyone from the business makes money expect the airlines". But jokes aside, the turmoil seems to have affected everyone in the airline business - the airports, the ground handling agents, catering services, support services etc.
For the industry to survive -The whole business needs to be re-looked at. The recommendations are not a panacea for all ills but triggers to solve some of them.
- Government & Policy
1. Anti socialism - There is a notion is that the airline is an elitist offering. This thought has stemmed from the early 'be good' policies structured by the government when equality was the right thing to do. Being rich was anti poor and being capitalist was bad. It was a crime to be seen as rich and it was good to be poor.
2. 'Anti' - Anti Socialism -By a rough estimate, 50% of the cost of a ticket is actually taxes and levies which pretty much sums the status of the airline industry in India. With a so called altruistic attitude of policy makers, this by default has made it prohibitive for the common man to access the airlines. I am sure even the common person would like to travel to a particular place faster than what he is doing right now (which either by train or buses) and is willing to pay a slight premium. If the airline industry needs to be actually democratized and made people friendly to make it within their means, taxes need to come down. As more people take to the skies, more revenues would more than offset the loss in the taxes and incomes. Increased loads will surely be a part panacea for the whole airline ecosystem and I would not be surprised if takes care of most revenue projections.A sort of democratization has been achieved by the advent and success of Low Cost Carriers (LCC) but what has been holding back further growth is the skewed nature of Indian policies.
3. Infrastructure status -Imagine if all the airlines were to shut, I am sure that the country would come to a standstill. In spite of all the advances in technology there are certain products and assignments which requires physical presence in another city. It is true that like all other forms of transport airlines too require extra care and a status befitting its importance. I really would like to see how politicians would survive given the amount of travelling they do given the time spent on politicking!
4. High fuel costs - The irony is that it is cheaper to full fuel in other countries rather than India as the costs are frightfully high. I am told that even some domestic carriers tank up at locations other than India to avoid paying high. Just imagine the revenue lost
1. Get of the high horse - While the airlines continue to bleed, I have seen that many executives (but positively not all!) still talk of the superiority of airline industry. My only request - please look at the writing on the wall! Partly it is due to this sense of arrogance and complacence which has resulted in this situation. Arrogance breeds inefficiency and inefficiency breeds wastage and wastage breeds losses.
2. Relook at the business; benchmark against other related businesses, Treat it as hospitality and retail business - Airlines need to look at all aspects of business to maximize revenues and minimize losses. For example - why can't airlines use the real estate within the aircraft to advertise other brands or even run activation/ engagement campaigns? The target audience does not get any more captive than this.
3. When we mention inflight crew we immediately associate it with good looking eye candy. But is that why passengers fly. What we need are efficient crew members! And why these crew members can’t be trained to sell on board. Treat the flights as a good revenue generating opportunity. Each aircraft can be a store which retails products like food, electronics etc. Airlines should take a leaf out of the retail business where you have exceedingly smart retail staff that can surely fit as crew too!
4. Competition: Railways -While a typical airline would like to think that the other brand is competition what is forgotten ( or some lip service given) is that how can passengers from railways be weaned away to move to flying. Imagine the potential if just 0.1% of all railway travellers moved (to give a perspective, the Indian Railways carry 30 million passengers every day)
I suspect that most airports think that since they are operating in a monopolistic situation they can demand or command a certain fee. True being a single player makes the airport one but with this attitude comes the perils of arrogance which has haunted the airline
1. Terminals for LCCs - India are probably one of the few countries which have the same terminals catering to most full service and LCCs. The LCCs, by the nature of the business require some services and facilities only and if it is not required why provide them? Not that that the airlines or airports benefit!
2. Transit point -With an increase in the number of airlines servicing a particular airport it is only natural that revenues will increase of the core services and also ancillaries from engineering to food and others. I do not see any conscious effort from any of the airports to let airline companies to use the airport as a transit point. All large airports especially in Asia namely Singapore, Dubai, Abu Dhabi and for even that matter Bangkok are making efforts to use their respective airports as transit points. Apart from the regular revenue upsides the ancillary revenues from shopping etc. sees a huge growth too.
3. Parking - When aircraft's are parked at a particular airport, parking charges are incurred. Right now there are very few international carriers who park their aircraft's in India. And I really don't see any concerted efforts to do so either.
4. Treat the shopping area as a mall. Increase shopping - It’s very easy to see passengers loiter around doing practically nothing. How about an entertainment area with bowling, arcade games? How about a resting room payable by the hour for a quick shut eye! Can we provide for movies in airports, paid for ofcourse?
They not were given enough importance in the scheme of things in India. I am sure that this group can actually change the revenue mix of the airports and also the airlines. Given their skills in retail and merchandising, it is advisable to leverage to maximize revenues both on the ground and in the air.
- Ancillary Service Providers (Ground Handling, Catering etc.)
The forgotten lot. Imagine flying without food. Many of these service providers need to re-look at their business model. For example - Caterers should look at business opportunities outside the airlines and airports. Since the kitchens are of the best quality in terms of infrastructure, human resources and processes they can surely look at offices, QSRs etc. to utilize their infrastructure optimally.
These are just some of the recommendations for attitudinal and business shifts which I believe can go a long way in easing the pressures on the airline business