CAPA Urges Governments To Liberate Low-Cost Airline

The leading aviation consultancy, Centre for Asia Pacific Aviation (CAPA) kicked off its second annual Indian Subcontinent and Middle East low-cost airline symposium in Mumbai last month. The two-day event called for greater government liberalisation of the aviation sector. Reema Sisodia summarises the event.

In the global arena, the writings are loud and clear. India is in the spotlight and is predicted to stay there for a reasonable amount time. A sudden revolution in the Indian aviation set-up with an emerging segment called the Low-Cost Carriers (LCCs) has grabbed the attention of aviation organisations and experts the world over. The event began with an address by Peter Harbison, executive chairman, CAPA, about ‘What Next for Low Cost Airlines?’ He presented an overview of the dramatic transformation of the aviation landscape across the Asia Pacific region in recent times as a result of the low-cost airline revolution and considered the implications of this phenomenon in the future. Harbison noted that it was gratifying to see the sustained level of confidence in the Indian industry, especially in light of continuously rising fuel prices.

Speaking at the conference, he stated that the role of government permeates everything that happens in the industry. He cited the case of the exponentially growing Indian low-cost sector as an example of the type of progress possible when government excuses itself from overbearing participation in the industry. After years of protecting the domestic carriers with market-stifling results, the government reversed course. "To its credit, the Indian government recognised that protectionism has become ineffective in a globalised market and that the national economy needed more domestic air service which the established airlines couldn't fulfil, thereby allowing new entry and route access on an unprecedented scale," he said. The result, he explained, is a huge boom in air service and traffic levels throughout the country, benefiting consumers and carriers alike. He further added, "Unfortunately, government remains an active player in the air transport sector throughout Asia. To ensure that the situation of India which for years featured unparalleled potential for growth that was not allowed to materialise, is not repeated throughout the region, we call on all players in the aviation sector - airports, tourism authorities and governments themselves - to do their part to help catalyse greater liberalisation." As part of his "wake-up call" manifesto for growth, Harbison urged airports to use their resources, including such international organisations as Airports Council International (ACI), to notify their governments that they want additional services, and also to register their interest with the low-cost airlines, who have shown themselves willing to serve unconventional destinations. He also exhorted tourism organisations throughout the region to combine their efforts with counterpart groups in other cities and countries (eg PATA) to lobby their governments to enact the liberalisation that will bring them larger number of visitors. Harbison lastly called on governments themselves to remove restrictions on international route access to regional gateways, which have significant prospects for growth and regional development without threatening the health of the flag carriers. He also asked the states of the region to permit foreign investment in national airlines, upto 49 per cent, in order to stimulate new market opportunities. Finally, he said that governments should accelerate the privatisation of their airlines and airports. The benefits in following such a course are evident to any who have watched the development of the low-cost sector throughout the region. Addressing the possibility that this revolution might be ultimately reversed, Harbison closed his presentation by stating "The egg has been scrambled, there is no turning back." Kapil Kaul, CEO, Indian Subcontinent and Middle East, CAPA, forecasted that the Indian airline industry will add 250-300 new aircraft in the next five to seven years, with the LCC sector accounting for the lion's share.

The conference witnessed a CEOs Panel comprising executives from low cost and full service airlines namely Captain Gopinath, managing director, Air Deccan, Wolfgang Prock-Schauer, CEO, Jet Airways and David Huttner, director, Plane BSD; and former head of strategy, Virgin Blue Airlines. The panel, moderated by Kaul, discussed how the domestic travel market is changing as a result of increased competition and capacity. They also considered issues such as innovations in in-flight products, distribution, pilot shortages and airport infrastructure. On Jet Airways increasing domestic fares by 10 per cent in October 2005, Wolfgang Prock-Schauer, stated, "Traffic in India is very buoyant so I do not see the fare hike hurting the Indian people." On the other hand, Captain Gopinath said his carrier was aiming to promote "mass travel of the masses," but said the government was too protectionist.

Dr Dinesh Keskar, senior vice president Commercial Airplanes, The Boeing Company, delivered the first keynote address: Key Success Factors for Low Cost Airlines. He announced that it is absolutely essential that a training facility be established in India. "Carriers in India are going to order a lot of planes and the need for training will rise," said Keskar. The second keynote address - An Alternative Approach to Aviation Development in India, was delivered by Nilotpal Basu, chairman, Parliamentary Standing Committee on Transport, Tourism and Culture, India, MP, head of Communist Party of India (Marxist) in Upper House. Basu said that problems in the aviation sector are not so much about ownership as they are about the functional autonomy required to be accorded to companies. According to Basu, Air India and Indian Airlines should be merged before they are privatised.

The second CEOs Panel on 'Low Cost Airlines on International Routes', moderated by Andrew Miller, CEO, CAPA, had Adel Ali, CEO, Air Arabia, V Thulasidas, chairman and managing director, Air India and Tom Wong, director corporate development, Macau Eagle Aviation Services as its panelists. It has been observed that in Europe, North America and Australasia, most successful low-cost airlines have operated primarily in domestic, or unrestricted international markets. Meanwhile, the Indian Subcontinent and Middle East regions are witnessing the rise of budget carriers operating internationally in a highly regulated environment. The panel considered the challenges of operating within such constraints; the market growth potential on international sectors; the pressure on governments to liberalise; joint venture models to take advantage of bilateral rights and the potential for offering medium haul and low cost services.

Another session was on `Low Cost Airports: Adapting to LCAs'. Pierre Germain, commercial and financial director, Geneva International Airport, T Srinagesh, COO, Hyderabad International Airport Limited, and Dato' Seri Bashir Ahmad, MD, Malaysia Airports Holdings Berhad, deliberated on this session. It has been examined that in their drive to reduce costs, budget carriers not only strive to improve their own internal efficiencies but also seek lower costs and greater productivity from their key partners; one of the most important being airport operators. The panel discussed what low-cost airlines are looking for from airports; the value of low cost terminals for both parties; competition between airports to attract low-cost carriers; incentive packages; and the non-aeronautical revenue potential of traffic volume.

The second day of the event witnessed a keynote address - Is There Hope for the Legacy Airlines? What We Can Learn From the Collapse of the US Legacy Carriers.

Michael Roach, co-founder & former president, America West Airlines and partner, Roach & Sbarra Airline Consulting, expressed his views on the session. This was followed by a session on `Strategies for Survival - Case Studies of Successful Restructuring', put forth by Andrew Miller, CEO, CAPA. Another session `New Relationships with Customers and Employees' highlighted the importance of key issues such as brand communication, customer expectations and service delivery/recovery. Meanwhile, the discussion also addressed the perception that organised labour is inconsistent with the low cost model and how labour and airline management can in fact establish a partnership to support industry and employment growth. The session was addressed by David Huttner, director, Plsne BSD, former head of Strategy, Virgin Blue

Ingo Marowsky, aviation secretary, International Transport Workers Federation.

Another noteworthy session was on `Investing in Low Cost Airlines'. There have been predictions that the low-cost airline boom is likely to lead to a marked increase in the scale and variety of investment opportunities in the sector from private equity placements in start-up carriers, to IPOs of more established operators seeking to fund their expansion. The session was moderated by M K Venu, senior editor, Economic Times and with panelists namely, Rajeev Mehrotra, executive vice president, Edelweiss Capital, William Blair, MD India, GE Aviation and Rail, Osman Qureshi, senior vice president, head of Industrial Sector, Istithmar and Andre Clerc, chairman, Willis Aerospace. They discussed their approaches in evaluating opportunities and whether the sector can continue to deliver attractive returns in an increasingly competitive market.

The CEOs Panel: Low Cost Airline Start-Ups, that was moderated by Andrew Miller, had Jeh Wadia, MD, Go Air, Marwan Boodai, Chairman and CEO, Jazeera Airways, Patee Sarasin, CEO, Nok Air, Ajay Singh, director, SpiceJet and Michael Roach, as part of the panel. In the last few years there have been a number of new entrants in India and the Middle East, while incumbent carriers have continued to expand capacity and frequencies, new city pairs have been launched and fares have reduced. Nevertheless, several start-up airlines are lining up to join them. In this panel, the CEOs of airlines preparing to launch services presented their outlook on the market; discussed on the likelihood of industry consolidation; and identified what differentiates their carrier, the relative importance of service, pricing and branding and why they believe they will survive in an increasingly crowded market.

The concluding session 'The Future for Full Service Carriers' had the likes of Abdul Wahab Teffaha, secretary general, Arab Air Carriers Organisation, Sunil Kishen, GM marketing & planning, Indian Airlines Saroj Datta, executive director, Jet Airways, Peter Hill, CEO, Sri Lankan Airlines was moderated by Harbison. Despite the growth of low- cost airlines, many full service airlines in India and the Middle East appear to face the future with a sense of optimism, marked by the growth of traffic and capacity and the placement of large fleet orders. The panel considered the future size and shape of full service airlines; what impact will low-cost airlines have on their business, particularly on short-haul sectors; increase their own efficiency and improve their competitiveness; and their thoughts on low cost subsidiaries.