Business - Q&A IATA CEO

Chanchal Pal Chauhan & Nirbhay Kumar

International Air Transport Association (IATA) represents around 230 airlines comprising 93% of scheduled international air traffic. Its director general and CEO Giovanni Bisignani was in India recently to discuss the new liberalisation regime and the wide ranging issues in Indian aviation industry. In an interview with Chanchal Pal Chauhan and Nirbhay Kumar, Mr Bisignani speaks on the burning issues that will shape the Indian aviation in the next few years.

Excerpts: Why is the Indian aviation sector in a bad shape?

There are two reasons for that. One is the government’s policy of excessive taxation and the other is airlines’ decision to add extra capacity. The government levies very high duty on aviation turbine fuel (ATF) which means airlines have to pay as high as 50%-60% for fuel as compared to their counterparts in Singapore or Dubai. In August, a kilolitre of ATF cost Rs 73,600 in Mumbai, 58% higher compared to Rs 46,500 in Singapore. Also passengers in the first and the business classes are taxed. All this put together forces Indian carriers to operate in a very unfavourable market. In all, the government is not following the Chicago Convention to which it is a signatory. I am not saying that the industry should not pay taxes. We have been saying that it should not pay crazy taxes. The government needs to relook the entire framework. And as for the airlines, they need to rationalise capacity deployed in the market and follow the standard practice. They need to handle capacity with care. Even if they have cut capacity, there is further need to reduce it. You can’t handle a load of 40% and make money.

How has the aviation landscape changed over the past few years?

Things have changed certainly but not to the extent expected. Greenfield airports have come up in Hyderabad and Bangalore. Delhi and Mumbai airports are being modernised. A lot of non-metro airports are being developed to world-class standard. Third runway has opened for commercial operation at Delhi airport which would ease congestion. But there is still a lot to be done. With the help of advanced technology, congestion can be curtailed by at least 10% just to start with. Still B747 keep hovering over Mumbai for an hour before landing. If the airlines save a minute they can save about $67 million annually. Mumbai immediately needs a second airport. In the last 3-4 years cargo has been completely forgotten.

What is the IATA’s stand on the service tax issue?

The issue of service tax is a major disincentive for growth of aviation. India imposes this tax on premium class tickets, overflight, landing and airport charges. Taxing overflight charges breaches India’s international obligations under the Chicago Convention. Imposing it on premium class tickets and landing charges is contrary to ICAO Council Resolution 8,632 which calls for a reduction in such taxes. India is a long-standing member on the ICAO Council. Not following ICAO policies is disappointing and an embarrassment.

How is India’s safety track record?

India has a fairly good track record. On safety, governments and industry have harmonised to global standards. The results are impressive. Air is the safest way to travel. Our membership is committed to global standards. That is why all 230 IATA airlines committed to the IATA Operational Safety Audit as a condition of IATA membership. But airlines that don’t make the standard by the end of the year will be out of IATA. Air India and Jet are on the IOSA registry. I encourage India to join the growing list of governments incorporating the IOSA global standard into their national safety oversight programmes.

How does IATA see the current round of downturn in the world aviation industry?

The situation is very grim and alarming. Already 24 airlines across the world have gone bust in the last eight months due to spiralling fuel price. As compared to the fuel bill of $135 billion last year, airlines world over would have to shell out $185 billion this year. Airlines would lose $5.2 billion this year and another $4.1 billion next year. This poses a challenge to many airlines for survival. At least 20 more airlines are on the verge of collapse.

Is there any Indian carrier at the risk of getting disassociated from IATA and closing down?

We cannot specify any particular Indian carrier, but one airline is facing severe financial crunch. The carriers’ bottom line is bleeding. The Indian aviation industry would post the largest losses outside the US of about $1.5 billion this year. When will Indian aviation turn profitable? There is the possibility of Indian carriers making profit by the end of 2009. By then airport infrastructure would have improved a lot. Airlines on their part would have come to rational level. Airfare level would also get corrected, the process of which has already started. New airlines came in as the potential was seen. But unfortunately they started targeting market share by reducing fare and adding capacity. This took heavy toll and continue to take. This was further aggravated by the spiralling fuel price. The aviation industry would soon have a regulator. How this would help airlines? Setting up Airports Economic Regulatory Authority is a positive move. While it would address the short-term issue of fixing reasonable tariff for airlines, it would prevent the possibility of airport operators to acting as monopolist. With more and more airports going into private hands, it would be imperative to ensure a competitive environment among airport operators.