Old Fashioned Efficiency & Reliability Pays In All Seasons

Old-Fashioned Efficiency & Reliability Pays In All  Seasons

Even in tough times, the efficient and reliable come through. India’s civil aviation industry, plagued by high costs of servicing, fuel, taxes and apron charges, and inferior technology at airports and ground handling, is a case in point.

But even in this sector, the adage holds good. Budget carrier IndiGo Airlines, with a market share of just under 30%, and revenues of Rs. 9458 crores, has turned in a handsome profit for FY13, while all other carriers have posted losses.

IndiGo’s Rs.787 crores profit figure is sharply up on the previous year’s 128 crores, and this is the fifth year in a row that it has turned in positive numbers.  It prides itself on not cancelling flights and always running them on time.

The flying public, from its numbers, and all other parameters such as customer satisfaction, seems to agree.

Other airlines, possibly embarrassed by their own inferior showing, while admitting IndiGo is indeed well-run, think the lack of transparency, as IndiGo is not a listed entity, may explain its stellar profitability.

They hint at accounting practices at variance with the others, to boost the stated profit. Industry analysts think IndiGo adds back the profits of buying aircraft, giving them back to the seller and leasing them again, and thereby adding a few million dollars to the bottom-line on every aircraft being used. But then, who is stopping the others from following suit?

IndiGo is owned by InterGlobe Aviation Pvt.Ltd. and claims to carry no debt on its books and has healthy cash flows despite the continuous addition of aircraft to its rosters.  This may be of much greater significance because high debt is a profit killer in this business for many reasons including the vagaries of seat-loads, and the perishability of the product flight to flight.

IndiGo’s performance, says the airline, comes from good management of its resources, efficiency, teamwork, and the fact that it carried 27% more passengers in FY13 while other airlines combined saw a 5% fall in passenger numbers.

Jet Airways which recently sold a chunk of itself (24%), to Etihad, along with its budget airline, JetKonnect, made about the same amount, 779.80 crores, in losses, as IndiGo did in profit.

The Indian aviation industry overall has lost $1.95 billion (About Rs. 12,226 crores) in FY 13 on a revenue of $9.5 billion, according to Centre For Asia Pacific Aviation (Capa).  And this does not include the red- ink from grounded airline Kingfisher. But a lot of this accounted loss is attributed to the national carrier Air India, once run profitably by Tata, and then counted amongst the best airlines in the world.

And Indian aviation is likely to lose more money because of rising fares and declining passenger numbers going forward, based on quarterly figures coming in.

One might conclude that the airline business is difficult in India, particularly for the under-funded/over-leveraged, and inefficient.

But it is still a great magnet for some.  The Tata Group, pioneers of Indian aviation under JDR Tata, are coming back into the fray with yet another joint venture with Singapore Airlines, but this time in a much changed economic and statutory environment. It is also entering the budget airline space with AirAsia from Malaysia.

Like Indigo, Tata has deep pockets and solid management credentials. This may make all the difference to its success. Tata will also be in a position to truly turn its joint ventures into global airlines able once again to compete on some of the more lucrative routes around the world.

To keep things going forward, there is a dire need for the liberalisation and modernisation process to continue, not only with regard to ownership, both national and international, but  upgrading of servicing hubs domestically, technology at airports, baggage handling, airport upgradation, new airports, rationalisation and lowering of taxes and so on.

India is potentially a huge market for civil aviation but Indians are price conscious travellers, and will go without rather than pay exorbitant rates, especially for leisure travel.

The opportunity therefore needs to be supported both by the government and the airlines in order to grow an d be efficiently cost-effective.  There is a new dawn in civil aviation emerging with the potential to add significant revenue and employment. It needs to be nurtured and encouraged.      

(712 words)

September 27^th, 2013

Gautam Mukherjee