Fasten seat belts, these are interesting times

‘We live in interesting times’, says an ancient Chinese adage, and that is how I would sum up aviation industry in the year that was and the one that’s coming.

The year 2008 was the jumpiest we have seen for aviation, starting on a positive note.
Traffic loads were doing well, government’s intervention helped improve air navigation services to lower air traffic congestion at Delhi and Mumbai. However, it was closer to the later half of the year that everyone realised the mistakes that were made — jet fuel prices and its impact on ticket pricing; and the real reason for loads to drop, which were affordability and lesser intent to travel.

Interestingly, 2009 begins more or less on the same note as the last year. From a peak of Rs 74,000 a kilolitre in 2008, jet fuel today sells for as low as Rs 32,000 a kilolitre in some regions. Loads aren’t doing that bad either.

Despite a surcharge-laden ticket pricing, October 2008 had occupancies in the 69-71% bracket. The traffic throughput in domestic and international passenger movement is also recovering well with April-October 2008 figures closing at 63.39 million passengers, just 3.4% less than last year.

Negative downturns in the airline business are cyclical and I am glad that we have them. It forces airlines to re-think business management, makes ticket pricing less frivolous and more logical, improves operations and efficiency, and lowers operating costs, in turn.

Historically, every time the airline business saw a slump, it emerged smarter, more focused, with newer technology, more efficient and greener aircraft and watertight business models that could withstand minor ‘economic tremors.’

The coming year, too, looks positive — fuel prices are down over 60%, India’s airlines have the youngest aircraft fleet with least maintenance burden, international passenger traffic’s improving, government polices are conducive with low tax and we are now increasingly flying in an open sky policy environment, as opposed to flight rights on bilateral agreements.

Beginning 2009, we should see more capacity deployed on account of lower ticket pricing, making air travel attractive. This will also bring back traffic to the Tier II cities.
Airlines are reluctant to pass on the lower fuel cost benefits to consumers, which will help them marginally recover losses incurred over the last six months. It will also make their balance sheets look attractive to the investor community.

By February 2009, the industry should see a revival where airlines decide to pass on the cost benefit to consumers.

This will help the fiscal 2008-09 close with higher domestic passenger traffic. Further, the coming year would see a few Indian low-cost carriers fly to Middle East and Southeast Asia, which is expected to boost traffic, revenues and forex earnings.
Risks and threats are, however, unavoidable. India needs to immediately look into homeland security to negate any further terrorist attacks.

If the aggressive retaliation to the Mumbai attacks unfold into a full-blown war with the neighbouring country, the airline industry would be forced in an environment with ‘no-fly zones’, travel advisories and withdrawal of flight services to India. This might signal the end of our airline sector.

But I am optimistic, as Indian airlines have adapted smartly to the changing market dynamics. I am pleased to report that all our airlines are still ‘alive ‘n’ kicking’ and haven’t changed their take off plans on January 1. So folks, fasten your seat belts, we’re indeed flying in interesting times. And yes, wish you all a very happy New Year!

Mark D Martin is an aviation professional with KPMG. Views are personal.