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IATA urges major reforms to Indian aviation industry

15 Mar 2012

The Indian aviation industry needs major reforms and a new common vision, declared Tony Tyler, director general and chief executive of the International Air Transport Association (IATA).

During the India Aviation 2012 conference, Tyler addressed the major setbacks and factors that restrain the budding industry on the subcontinent while setting forward propositions that would make the sector competitive in the global market.

Currently, the aviation industry is responsible for 0.5 percent of India’s GDP and supports more than 1.7 million jobs. However, Indian travellers on average only make 0.1 trip by air per year, compared to 1.8 trips per year in the US, reflecting a lot of unexplored potential. 

“Aviation’s contribution to the Indian economy could be much more. If India’s 1.17 billion people travelled at the same frequency as in the US, a market of 2.1 billion travellers would be created,” added Tyler.

The way that the aviation industry could turn around, explained Tyler, is “by addressing the difficult issues of tax, cost, investment and infrastructure.” The high jet fuel taxes in the country cripple many of its carriers, demonstrated clearly by Kingfisher Airlines' recent woes (see story here).

At present, fuel makes up a total of almost 45 percent of operating costs for Indian carriers due to a combination of excise duty (8.24 per cent) and state fuel taxes (30 per cent), while the global average stands at 32 per cent of operating costs.

“It is now clearly recognised by all that fuel taxes are sucking the lifeblood from the Indian aviation sector,” Tyler said, urging ministries at national and state levels to step in. He also stated that, in his opinion, the service tax on tickets and on other services should be removed to further boost competitiveness.

Secondly, the infrastructure in India not only lags behind global standards but also provides hardly enough capacity to meet demand, particularly in Mumbai – one of the country’s most important hubs. Commenting on the ongoing expansion project at Chhatrapati Shivaji International Airport, Tyler said: “Mumbai is bursting at the seams. The first phase was meant to open in 2014 but construction has not even begun. Land acquisition is not yet complete.” 

Though the new terminal at Delhi Indira Gandhi International Airport is seen as a model example for new airport construction projects, the proposed airport levies – expected to rise by 340 percent over the next two years – will ruin the facility’s standing. “It will make Delhi the most expensive airport in the world and destroy its competitiveness,” said Tyler. There are several alternative solutions, added Tyler, leaving absolutely “no reason why the 340 percent, or any increase of this magnitude, should be allowed to go through.”

Finally, Tyler touched upon the foreign investment policies, supporting the positive consideration of the Ministry of Civil Aviation (MOCA) to allow up to 49 per cent direct investment by foreign carriers – a percentage in line with that applied to other industries. This positive development would facilitate strategic tie-ups with airlines overseas that could help strengthen carriers such as Kingfisher. Yesterday (see story here), the debt-ridden operator announced “there is an interest from perspectives” in terms of possible foreign capital coming in, subject to MOCA's approval.

“But allowing foreign airlines to invest in Indian aviation is not a panacea. Without addressing the other three pillars – cost, taxes and infrastructure – it may only be a theoretical exercise. Under current conditions, the odds are stacked against any investor making a positive return on investment in the Indian aviation sector and no one is likely to come forward unless they see themselves making a profit,” Tyler added.

One can only wait and see.

Click here to read more of Tony Tyler’s predictions and insights for the global aviation industry at large, alongside other industry veterans. For more information, visit www.iata.org

Alisha Haridasani

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