Wednesday, March 07, 2018

Airfares to remain low; but brace for clogged airports, says KPMG’s Amber Dubey

In a relief to frequent and even occasional flyers, airfares may remain low despite the 14 per cent increase in prices of air turbine fuel in the past one year. “Given the level of competition, it looks like airfares may continue to remain low,” says Amber Dubey, partner and India head of aerospace and defence, KPMG.

But that doesn’t mean that flying will get any smoother in the short term. Dubey, who was instrumental in drafting the National Civil Aviation Policy, points out that capacity addition in airports, biometrics-based verification and reforms in immigration are imperative to develop the industry.

In an interview with Moneycontrol, Dubey said that despite the challenges, India had the potential to surprise the top two aviation powers, US and China, by 2030.

Edited excerpts from the interview:

Competition and capacity addition have kept fare hikes in check. But fuel costs have gone up for the airlines. How long do you think the trend of low fares will continue?

The ATF price per litre in Delhi in March 2018 is around Rs 61.7, a 14 per cent increase over Rs 54.3 in March 2017.  The average international price of ATF in March 2018 has also risen by 22 per cent to $79.1 per barrel over a 12-month period.  The ATF price shock in India is cushioned since it is, and thankfully so, not directly linked to the international price movements.  The government has the ability to soften the crude oil price shocks by adjusting the high taxes imposed on ATF at the central and state level.

Many experts feel the ATF price will remain range bound and is not likely to show any dramatic upward spike, especially beyond the Rs 70 per litre mark that we last saw in August 2014.  Given the level of competition, it looks like airfares may continue to remain low.  On certain routes where airport capacities have become constrained or where there are lesser number of airlines operating, we are seeing high last minute fares especially in the peak hours and high demand days like festivals and long weekends.

Will rising fuel prices undermine the UDAN scheme, especially with states already struggling to contribute their part of the VGF (viability gap funding)?

UDAN scheme is well covered by contributions from passengers on trunk routes and dividends from Airports Authority of India (AAI).  It has brought in a mini-revolution by bringing many unconnected cities of India onto the national air grid. UDAN is too big to be allowed to fail, even in states that may have some short-term funding challenges.

What is your view on the Air India divestment? The way things stand, will global players be interested? What more does the government need to do to make this a success?

India is one of the fastest-growing and grossly under-served aviation market. Air India has 17% and 13% share in the international and domestic routes respectively.  It has significant untapped value in terms of fleet, slots, pilots and other assets.  It (the divestment) is likely to elicit interest from Indian carriers and some leading international carriers in collaboration with their Indian partners.
07/03/18 Prince Mathews Thomas/