Friday, July 30, 2010

Sky High

New aircraft, great colors, but who really is up there, flying?

Dinesh Keshkar, the Senior Vice President, Sales; and President, Aircraft Trading, Boeing Commercial Airplanes, had talked of a severe shortage of pilots in India, while projecting a need for 4000-5000 pilots over five years. India was seeing the beginning of an aviation boom, with the promise for every Indian to fly, and every new airline to take wings. Five low cost airlines had been launched, most flexing their nascent muscles by ordering unfathomable number of aircraft. Jet Airways had gone international, and everyone was not only dreaming big, but talking big.

Vijay Mallya earned the title of “the Richard Branson of India” with the launch of Kingfisher Airlines, and his vision of making it the largest private sector airline. Kingfisher aimed at 55 aircraft in its fleet by the year 2010. Jet Airways had ordered for 30 jet airplanes, while the newly found low cost carrier Indigo Airlines had placed an order for 100 Airbus aircraft. The minister for civil aviation, Praful Patel predicted passenger numbers to touch 50 million in five years. Indian aviation was poised for a forecasted growth of 20% a year.

The potential for making a huge amount of money in aviation training saw multiple flight schools spring up, while those who wanted to take the easier way out tied up with foreign flying schools. All of a sudden, airlines were recruiting youngsters, sending them abroad for training under the candidates’ cost, and then absorbing them into the airline, after training them on aircraft in their fleet. Many wanted to be a pilot; the profession promising an exciting career, glamour, and heavy remuneration.

But all that was in 2005.

Five years on, the scene is a stark contrast to all the hue and cry made by “experts” and analysts in the industry. The heavily loaded torso of Indian civil aviation would have continued to glitter on shaky thin legs, had it not been for the global market collapsing. The banks collapsed, and then there was no money to lend. The hunky dory outer image of airlines was a shocking contrast to the dark corridors of their financial and operational conditions. While some airlines were being run and managed by those who had no prior experience in the field, resulting in some very poor decisions, other airlines hemorrhaged in the light of very stiff competition and rock bottom airfares. The blame on fuel prices inflicting financial wounds on the airline’s health was rubbished by Capt. Ranganathan, a high profile flight safety expert and captain with over 20,000 hrs of flying time. “Fuel prices went above hundred just for a couple of months, and it peaked to 145 dollars just for a week or so. If you take the average fuel prices for a whole year, they were much less than a hundred dollars.”

The numbers, in the pre-2008-2009 era, were astounding. Passenger numbers started rising, the number of hours annually flown by planes started rising, but one dim warning light kept blinking: the load factors.

From carrying a little over 16 million passengers in the year 1999-2000, of which 13 million were domestic travelers, airlines in India transported close to 45 million passengers in 2007-2008. The growth in passenger numbers was consistently well above 20% per annum, with the growth touching 41.7% in the 2006-2007 period over the previous year. The champagne bottles were being popped, but if one shifted their gaze from the passenger numbers to the load factors the warning could be seen: overall passenger load factors remained almost consistent at 68%, while the number of hours that aircraft were flying were continuously increasing, from over half a million hours in 2004-2005, to 1.2 million in 2008-2009. It was in 2008-2009 that, despite more hours in the air, load factors fell to 64.7%, and the number of passengers flown fell to 49.5 million from 53.5 million. The lull was here, and the bleeding continued. Pilots in Air India have talked of flying a Boeing 777 with a capacity of 440 passengers, to New York, with only 7 passengers on board.

“The whole collapse was because there was overcapacity. The regulator (DGCA), the ministry (Ministry of Civil Aviation), should not have allowed so many aircraft coming into the country when we did not have the infrastructure, and we didn’t have the passenger load for that. So every airline was killing each other by cutting the fares, by trying to pick up the load. And filling up the loads where your yield is low, is not going to bring you money”, said Capt Ranganathan at the Tenth Annual Regulators and Policy makers Retreat, hosted by Aviation Watch and IPPAI in 2009.

The collapse had an effect on aspiring pilots who earned their license, only to find 4000-5000 other fresh pilots like themselves hoping for a flying job.

Says Devaraj, a CPL holder who flew at Canada, where flying is not only slightly cheaper, but faster, “It really did affect me in terms of being discouraged by looking at the situation. My mental state was to do something to pay off the hefty loans that my dad took from several banks.” Flying at the premier flight school in India, IGRUA, costs a whooping INR 2.7 million, but the students were at least guaranteed placements at Air India. This was until last year, when the national flag carrier didn’t turn up, after mounting losses to the tune of INR 55.5billion in November last.

While Kingfisher presently boasts off 66 aircraft in its fleet, far surpassing Vijay Mallya’s goal of 55 aircraft, the avalanche of debt is not far behind. The Daily learnt of 15 of Kingfisher’s aircraft being grounded, due to the unavailability of spares, engines and lack of finances. With inside reports of hotels complaining of unpaid bills, clubbing of the captain and first officer in a single transport as opposed to the earlier exclusive treatment, and banks suing the airline for defaulting on aircraft payment, the “Fly the Good Times” doesn’t seem of much relevance now.

Says a frustrated Devaraj, “This airline purchased left, right and centre seemingly not caring about the future, but to expand and become a big one instead of choosing to make money.”

But airlines which have kept both their cool and their rationale seem to have either sailed the rough seas or surfaced from potential wreckage. Jet Airways posted a 2010 Q1 net profit of Rs 35 million, against a loss of INR 2253 million in the corresponding period of the previous fiscal. On the other hand, the 2008-2009 period saw Indigo posting a profit of INR 821 million. Careful planning and a tight control on costs seem to have kept the carrier afloat.

Halfway into the 2010 calendar, good news is breaking. Rising from the ashes are airlines posting profit, and advertisements for flying jobs on their websites. With Air India claiming to perform better, hopefully inducting the aircraft it had then planned to aggressively purchase, the 5000 CPL holders have a reason to smile. Even more with news of Air India losing pilots to age, DGCA coming down hard upon foreign pilots; Spicejet ordering 30 airplanes, Indigo recruiting pilots through CAE, Jet Airways calling for both ab-initio and type rated pilots, and Kingfisher calling back on line some of their pilots whom they had grounded : The much awaited dawn is here.

Data from the Directorate General of Civil Aviation, DGCA, shows passenger numbers up from last year during the same six month period. With 25.7 million passengers flying in the first six months of 2010, and airlines on an expansion drive, the numbers could well surpass Praful Patel’s forecast.

 “When you talk of projections, you’ve got to have people who don’t use simple multiplication. You may have a good load factor, a good income this year, but that doesn’t mean that if you look ten years ahead, you just multiply that figure by ten”, says Capt Ranganathan, on the issue of forecasting growth in the aviation sector. “That’s exactly what they did.”