Shifting Sands of Indian Aviation

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By admin April 13, 2015 19:11

Shifting Sands of Indian Aviation

Following a request by Jet Airways the Indian Civil Aviation Ministry has sought approval from the Finance Ministry to increase the Reserve Bank of India $300m non-resident lending cap for individual scheduled airline companies seeking working capital through external commercial borrowing. So we can take it that Jet Airways requires another capital infusion from Etihad, having already reached its $300 million limit long ago.

It should also be added that with Indian airline sector increasing in size by the year the RBI set $1bn total cap on debt taken from overseas for the entire scheduled airline sector is looking outdated and inadequate.

Jet is on the $300 million limit as discussed. Air India is looking to take $300 million with its RFP in the market now and GoAir has taken about $50 million. That leaves around just $350 million in the pot for all other airlines for the near future as things stand.

The facility of raising ECB for working capital requirements was introduced in the 2012-13 Indian budget. The Reserve Bank of India has since extended the window for airlines to raise ECB twice, with the most recent deadline being March 31, 2015 which is likely to be extended also.

Meanwhile there are grumblings at Tata with regard to the AirAsia India venture’s progress to date. Tata Sons are reported to be unhappy with the airline’s performance to date and they want to see more progress on network planning at speed. The airline has a 1.2% market share after just eight months of flying, but Telstra and Tata, the two main investors in India, are worried following the cancellation of the Chennai-Bangalore route due to poor load figures. The plan was for AirAsia India to add one aircraft per month and break even by December 2014. Breakeven was pushed back to June 2015 while the airline has only taken four aircraft to date, with three in service.

The big mistake for AirAsia India was not entering the fray and attacking the key Delhi and Mumbai markets and one hopes that the fourth aircraft delivered will be put to work in these markets. But in defence of AirAsia India, it is trading on shifting sands of collapsing fuel prices from where they were when the business plan was created two years ago. Moreover Indian market regulation has been all over the place and India moves to build low-cost terminals at airfields across the country with land fees and charges far removed from what was the norm some two years ago.

AirAsia failed to recognize the fact that the true low cost model that can be rolled out from the US to China and Europe to Malaysia and everywhere in-between, does not apply in India. Regulations prevent the same from taking full effect. AirAsia has not been able to charge for baggage and all sorts of other unbundled options and of course it was forced to abide by Route Dispersal Guidelines forcing AirAsia India to run non-scalable network additions. Infrastructure constraints at the chosen tier 2/3 airfields has also hurt AirAsia India.

All this shows that AirAsia miscalculated on the difficulty of operating in India, but with Tata Sons on its side, the airline may be able to force change at governmental level that will see it well placed for the future. Already we are seeing rules relaxed on seat charges and baggage charges in India. The future is hard for airline in India but it could so very easily be very bright indeed and all agree that it is worth taking the pain (if you can) to stay in the market and wait for the inevitable big bang to come. All this points again to the fact that IndiGo really is one of the best run airlines in the world.

admin
By admin April 13, 2015 19:11