'End ad hoc decision-making'

The aviation sector in India is going through interesting times. With the government increasing the Foreign Direct Investment cap to 49 per cent, more and more foreign players are now evincing interest in putting their money in domestic airlines.

Etihad has invested in Jet Airways while AirAsia India is to start flying on June 12 and Tata-SIA is waiting in the wings. Kapil Kaul, an expert in the field and CEO (South Asia) of aviation think tank Centre for Asia Pacific Aviation (CAPA), spoke to Shemin Joy of Deccan Herald on the future and challenges of country's aviation sector.

  Excerpts:
Is the future bright for Indian aviation sector? 

The long-term growth potential in India is massive. CAPA Research estimates that traffic size will reach (unconstrained model) to 450 million airport passengers by FY 2023 (from 169 million in 2013-14). India could see traffic crossing 1 billion airport passengers by 2040. India's growth between FY 2003 and FY 2013 was more than three times the growth that had been achieved in previous 50 years. In spite of this growth, India's seats per capita is very low -- 0.07 for domestic and 0.04 for international. So, we have a huge growth upside for next 3-4 decades but translating this growth into reality will require transformational changes in our planning, regulations, policy, infrastructure and skill development, safety, security and more important, we need a fiscal framework, which can support continuous investment in this sector.
What do you expect from the new government to boost growth?

I hope the new administration takes aviation seriously and initiate measures which leads to stability and profitable growth across the value chain. I would like to see an immediate end to the ad hoc and arbitrary decision-making that was seen in last few years. Since 2008 onwards, aviation was weakened significantly in every aspect as far as institutional development and integrity is concerned. India is an over-regulated and extremely under-managed sector, it needs structural reforms. The sector lacks leadership and is critically placed.
Will the entry of AirAsia India change the aviation scene in India?

Air Asia is a proven player and will be positive for the consumer and industry. However, I think they are underestimating the competitive dynamics in the market and more important, are not adequately capitalised and have lack of management depth that is required to be successful in this very complex industry in India. Expect Air Asia to be severely challenged here and this will be their toughest test.
Do you think the rivals are right in challenging the entry of AirAsia India?

It is very unfortunate that the industry is legally challenging Air Asia's entry in India. FIA, which is more or less defunct, has surfaced only for challenging AirAsia. However, issues about control and ownership as far as AirAsia is concerned, may have some merit especially as Tatas and other investors remain silent and perhaps, invisible. Forty-nine per cent stakes, which is the largest shareholder and the India entity, has the AirAsia brand name may have required more regulatory scrutiny but being unlisted made it easier for the airline. Personally, control more than ownership is the issue here especially control in day-to-day and strategic decisions. In this regard, AirAsia made a big mistake by visibly leading every action since the beginning and leaving other investors with no role. The board, especially the chairman, should have dispelled this control issue by taking lead. So in a sense, AirAsia India's investors are responsible for this perception that it is controlled by Air Asia. This could and should have been avoided. Maybe, wrong advice. 
There is an airfare war going on. Is it beneficial for the airlines? Is it beneficial for fliers?

The airfare war is limited to a few routes. It will spread to other routes as AirAsia expands. It will be fierce but will further challenge all the players including Air Asia. Industry lost US$ 1.5 billion in FY 2014 and most of the airlines are seriously challenged. This below-cost pricing has hurt the industry since 2004 with accumulated losses touching closer to US$ 10 billion. It does not help the consumer in the long run, as choice gets limited, as some airlines do not survive this battle but see no near term correction as far as this loss leadership pricing is concerned. 

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