Corporate Focus

Yeti Air Breaking the barrier

After the collapse of Necon Air, the market experienced a huge drop in the seat availability. As a result, there was a sudden spate of activities by some airline companies to fill the vacuum. But while the expansion of these airlines is going on, there are fears looming large in the industry due to the uncertainties in tourism industry. If the arrival of foreign tourists (particularly of those who go for trekking or mountaineering) does not go up from what it is at present, some airlines will certainly have to fold their wings.

The alternate is to change the focus. And that is what Yeti Airlines, the largest private sector airline today in terms of its seat capacity as well as in a number of other terms, seems to be doing. “We have learned a lot from the Necon failure and we are not going to let that happen in Yeti,” says Vijay Shrestha, the General Manager (GM) of Yeti Air.

Started modestly in 1998 with one craft only, Yeti now operates six crafts (19 seater Twin Otters and two 36 seater SAAB) and plans to bring in another SAAB within this autumn season. With the acquisition of the new equipment to the present level the company has 30% more seat capacity as compared to its nearest competitor. The new craft will increase the gap to 80%, according to Yeti’s GM.

However, Yeti is still focused mainly on serving the niche routes. And the business there is going well with above 90% seat occupancy while this rate is 80% in trunk routes but, with acquisition of SAAB now it is expanding on the trunk routes .

The reason for turning to the trunk routes? “An airline in Nepal cannot survive even with 100% seat occupancy if the passengers are only Nepalis or Indians. We need third country tourists who pay the fare in hard currency,” says Shrestha. But there are signs that such tourists will come in less number in the coming days. Since the fare for the Nepali and Indian travelers on the remote areas is cross-subsidized by higher yield from tourists tariffs, if the tourism industry continues to tumble, flights to the remote areas will be hard to justify commercially.

That requires the airlines to be flexible. If you operate leased craft you can send it back when you do not need it and owning the craft does not give you that flexibility. The incongruity of aviation policy of the government makes the aircraft owner as well as the lessee liable during the aircraft’s operation in Nepal. Therefore the international aircraft leasing companies get skeptical while leasing out aircraft in Nepal. They are bound to clear all the government dues incurred by the local operator before taking the craft back. Though this rule is now being amended, the process is not completed yet.

As a result, the Nepali operators find it difficult to access lease agreement for the craft in the international market. In the general international aircraft lease markets, the aircraft suppliers prefer to sell the equipment stock and barrel yet, to operate a profitable airlines operation in Nepal means being flexible in its supply capacity and adapt to the market situation. This means winning the confidence of the leasing company by demonstrating a sound ground operation and the ability to penetrate markets quickly, which the team at Yeti Airlines seems to have already achieved.

Another method to remain flexible is to serve the trunk route as well as those routes with higher dollar tariff to cover the cost of operation. This is the reason why Yeti is bringing in the bigger craft, concludes Shrestha.

The next challenge facing the Nepali airlines is to reduce the cost of operation and this is a critical issue with all the airlines in the world. For that Yeti is trying to use the craft in a most optimal way. Had there been night landing facilities in all the major trunk route airfields, it would have been easier for the airlines to have more optimal utilization of the craft. Better utilization of the craft results in better seat yield, the money that comes to the company after meeting all the direct costs of each aircraft seat sold.

The distribution channel of Yeti Airlines is rather unique and is highly dependent on travel agents and tour operators, therefore, relationship management with ticket consolidator and agents will be critical. Although it may appear that demand exceeds supply in Nepali domestic aviation, the jugglery required to balance Nepali Rupee tariff with hard currency tariff to remain profitable seems to be the biggest challenge for Yeti Airlines.

Vijay Shrestha sounded confident of pushing the barrier of profitability within the Nepali skies with the intelligent combination of yield, occupancy and routes. The current dominant player in the trunk routes Budhha Air will be its primary competitor and occupies a very high awareness and acceptability amongst the Nepali consumers, therefore it remains to be seen whether this strategy of penetrating the markets of trunk routes on a profitable basis will be successful. If it does, then, in Nepali Aviation history, Yeti Airlines will break the barrier.

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