Steer clear of aviation sector

New Delhi: Some businesses are inherently unviable but worth funding for the positive externalities. For example, no metro project can make operating profits on fare-revenues though they also generate a lot from real estate plays. But loss-making metros allow urban centres to flourish, generating higher tax collections overall.
However, long-distance railway operations can be very profitable, That’s due to freight revenues. Also, railway stations are natural hubs. Airports are also natural hubs, as shopping centres with a captive clientele, and often, attractive duty-free rates. All global air-hubs earn more from cityside (non-aerial traffic) revenues than from airside revenues.
The airline business itself is very cyclical. Capital costs of fleet acquisition are high, so is maintenance and repair, and even parking fees. Salary overheads are high. Operational costs like aviation turbine fuel (ATF) are high. Pricing power is low, due to competition. Traffic can fluctuate alarmingly. Many airlines end up drowned in debt and run up huge losses.
But cheap convenient air-travel is a key infrastructure component. The Indian government recognised this a decade ago. It has embarked on an ambitious airport-building and renovation plan. It has also loosened controls on new airlines. The low-cost model is now a fair alternative to high-end rail travel.
The Indian aviation industry is, like other semi-liberalised industries, mired in more problems than its global counterparts. There are bizarre controls on FDI, and restrictions on joint venture partners. There's an insistence uneconomic routes must be flown. An airline must also operate domestically for a long time before permission is granted for overseas operations.
04/12/11 Devangshu Datta/Business Standard

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Categories: Indian Aviation- In General Dec 2011