Next aviation war likely in foreign sector

The next aviation war among the domestic carriers could be fought on the international sector with the current tailwinds for revenues and profits blowing in that direction.

Consider this: In the third quarter of fiscal 2015, Jet Airways's domestic revenue grew 6.8% over the same quarter last year to Rs 2,113.7 crore while its international revenue grew at more than twice that speed of 17.4% to Rs 3,089.9 crore during the same period.

The full-service airline fared better on the international sector even in terms of number of passengers carried during the same period, with its seat load factor at 86.3% compared with 82% on the domestic sector.
It was the same for budget airline SpiceJet Ltd, which started flying on foreign routes only a few years ago.

According to Kaneswaran Avili, chief commercial officer (CCO), the no-frill airline's growth in international air passenger traffic this fiscal month till date (MTD) compared with same period last year was 44% while revenue climbed 37%.

Avili said, "All international routes operated by SpiceJet are profitable due to higher yield and lower operating cost." It's no secret that it is not the case on the domestic routes for the budget carrier that is trying to fly out of stormy skies.

Indian carriers are also fast expanding their market share on the international sector with all of them growing over 10% in the fiscal 2014. The Directorate General of Civil Aviation (DGCA) has not yet come out with this fiscal's numbers.

As per the statistics by aviation regulator, SpiceJet's market share grew 97% in the last fiscal, followed by IndiGo at 24%, Etihad 20%, Omar Air 17%, state-owned Air India 11%, Qatar Airways 7%, Jet 6%, Saudia 5%, Singapore 4% and British Airways 1%.

In the last fiscal, Thai, Sri Lankan, Air Arabia and Emirates had a negative growth of 15%, 5%, 2% and 2%, respectively.

These statistics clearly show that battle for market share will now shift to international sector with each domestic airline trying to grab as big a pie as possible.

It is, therefore, not surprising that the existing local carriers are lobbying hard with government to mar any chances new airlines like Tata-Singapore joint venture Vistara and Tata-AirAsia's AirAsia India might have to enter the international market.

The Ministry of Civil Aviation (MCA) is keen to do away with the rule of 5/20, which permits only airlines with five years' experience and 20 aircraft to fly overseas, but has come up with a restrictive substitute for it in the form of domestic flying credit (DFC) eligibility rule.

Under this proposed rule, a new airline can apply for international operations only earning a minimum of 200 DFCs, which according to airline experts can take over two years to earn.

"On reaching the 300 DFC milestone, the air carrier can approach the government for being designated on a long haul international route of more than six hours flying time, and the government will consider the case in accordance with the provisions of the bilateral Air Services Agreement with the country concerned," states the revised draft aviation policy.

So, even after logging 200 DFCs in the Indian skies, the new airlines will not be allowed to fly on short haul routes. For that, the draft policy says, the airlines will have to accumulate 600 DFCs.

A Vistara executive, who spoke off-the-record, said the airline was studying whether it was worth bleeding on some non-profitable domestic routes to gain mandatory DFCs or wait for five years and expand fleet to 20 aircraft to operate on the international sector.

And even as the proposed DFC rule has put AirAsia and Vistara on the back foot, SpiceJet has initiated a fare war on the short haul foreign routes by offering air ticket at Rs 2,699 per passenger. Jet Airways has reacted by discounting its fare by 25% on flights to shorter distance overseas destinations.

Both of them, along with IndiGo and state-owned Air India, want a bigger chunk of the international market and, for the moment, they do not want to share the booty with any other local players.

SpiceJet's Avili is all for 5/20 rule to stay; "It enables Indian carriers to develop operational expertise and a track record of safety and security in domestic space, under the full oversight of DGCA, before they spread their network to take the Indian flag on more complicated, multi-jurisdictional international routes."

"These criteria ensure that Indian carriers demonstrate their long-term commitment to the national interest of developing domestic connectivity and (in doing so) serving the socio- economic objectives of connecting underserved areas. The twin criteria of five years and 20 aircraft were introduced so as to ensure that all new airlines would serve the domestic market by operating with minimal fleet during the qualification period of five years. The intent of these criteria continues to be just as valid today to support these objectives," Avili said.