Mumbai: The two-day India Aviation Outlook Summit, hosted in association with the Centre for Asia Pacific Aviation (CAPA), got underway in the city today, with the initial half of the first day focusing on the impact of the sharp fuel price rise.
In his opening remarks, CAPA chariman Peter Harbison talked about India's focus on developing its infrastructure like airports and the need to build for sustainable and viable aviation industry.
In a panel discussion on understanding the regulatory developments and issues affecting India's dynamic aviation market, Kapil Kaul, chief executive officer, CAPA India, said that the last six to eight months the airline industry had been sliding on account of an "extremely negative" physical regime. He wanted the government to revise its position on taxes levied on the aviation sector, most importantly the tax on aviation turbine fuel (ATF).
On teh infrastructure growth that the industry has seen over the past four year, Kaul said that the execution risks were real, exemplified by the overruns seen in the construction of the Delhi airport, and the delays in crucial decision making about the new airport in Navi Mumbai, even as the Mumbai airport has been trying to cope with the constraints of space. Outlining the two most important areas for the government to help the aviation industry, Kaul it was imperative to get the costs of running an airline down to bring in stability, and ensure speedy execution of infrastructure projects in the aviation sector.
Ramki Sundaram, Air Deccan's officiating chief executive and financial officer highlighte the huge market opportunity before the Indian aviation sector, and an estimated five-million strong middle class by 2010 who would want to fly. He said that while the industry was banking on this segment to fuel its growth, the airline industry also continues to operate in the costliest environment, as was evident from the prices of aviation fuel, which is 80 per cent higher in India than in the international markets. To top that, taxes, surcharges and other levies ensure that 75 per cent of the cost of operating an airline in India are significantly higher, which directly impacts the performance of the airline.
Sundaram said that the market was definitely thinning on account of runaway oil prices, as was clear from the single digit growth shown last year, for the first time in years. Air travel, according to Sundaram, are now no longer a luxury, and fast becoming an essential mode of travel. He also said that the industry infrastructure and the value chain of the companies supported by the aviation industry make it a mandate for the government to take measures to ensure sustainability and long term viability of the industry an important cause for the survival of these ancillaries.
He poointed out that in India airlines pay around Rs68 – 70 per litre of aviation turbine fuel, which is around $1.70 per litre, and around 80 per cent higher than what they pay in neighbourhood countries like Singapore and Dubai.
Responding to a question by Harbison, Sundaram said that hedging in fuel had been permitted only recently, but the fact that the price of aviation fuel is decided by the oil companies using a non-transparent formula, and is later communicated to the airline, effectively negated any opportunity to hedge in markets that are exceedingly volatile in the first place.
James Hogan, CEO of Etihad Airways was more diplomatic in his responses, saying that as his was an international airline flying in and out of the country, different rules applied to him. Hogan said that the government of India is headed in the right direction, and though the overall scenario was positive, issues could be addressed at a faster pace.
The panel was in consensus over a number of other points as well. It said that if the aviation industry was not sustainable, there would not be much use for all the infrastructure being built. it also concluded that consensus at a political level was imperative for the growth of the aviation sector, as execution risks in infrastructure projects had the potential to undermine serious gains made by the industry.
Outlining a possible scenarios if Goldman Sachs' predictions of oil touching $200 a barrel came true, he said that there would be no other option but to initiate capacity constraints, and a much smaller population would take to the skies at much higher prices.