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COVER STORY |
ENSING
FOR INTERNATIONAL FLIGHTS At a time when much of the
world's aviation industry is losing money and some have been bailed out by governments,
civil aviation authorities in Nepal are considering whether to issue international flight
license to private airlines. With virtually non-existent infrastructure, tough
international competition and huge initial investment, nobody understands the rational
behind the decision. Interestingly, the private sector is pressing its demand for the
license at a time when major international airlines are cutting staff and other
expenditure for survival. How have private operators in Nepal come up with the confidence
to demand international flight licenses at this crucial juncture? By KESHAB POUDEL Among the first five private airlines that
were allowed to fly in the international sector, only Necon Air has been operating
flights. But Necon Air has suspended two scheduled Biratnagar-Calcutta and Kathmandu-Patna
flights and is now operating the Kathmandu-Varanasi sector by ATR-42 aircraft.
The other four airlines simply had to
abandon their hopes of going international. The failure of private airlines to start jet
services is a consequence of low profit margin, big capital investment and lack of
technical capabilities. After the September 11 attack on the United States, it has become
very difficult for new airlines to operate international flights. Just a few weeks before the attacks in New
York City and on the Pentagon, the Nepalese cabinet directed the Ministry of Culture,
Tourism and Civil Aviation to issue licenses to two private airlines to operate cargo and
passenger service. The ministry, which invited applications from interested parties last
year, is now said to be screening two airlines from five applicants. Nepal International
Airlines, Aero Nepal, Sita Air, Cosmic Air, Air Shangri-La and Asian World International
have submitted bids. At a time when experienced carriers like
Dragon Air have postponed plans to begin a new schedule in Nepal, on what basis are
Nepalese business groups and aviation authorities considering to operate international
flights? When the private sector has seen little success in domestic flights, how do they
expect to go international? In the last seven years alone, more than half of the private
carriers have shut down after incurring huge losses. Airlines need to consolidate if they hope
to prosper during times of crisis. But Nepal's private airlines, which are struggling for
survival, are pushing ahead with a new demand to fly on the international sector. With
limited investment, lack of infrastructure, low technical capabilities, poor marketing and
a weak financial base, operating in the international sector is almost certain to invite
bankruptcy for these carriers and to push the country's national flag carrier to closure. Unfriendly Market With the increase in insurance premiums by
400 percent, the operation costs of Nepalese carriers have increased by many folds. The
increase follows a 30-35 hike in the price of aviation fuel, a 400 percent cumulative rise
in civil aviation charges, including parking, housing, landing and navigation, growing
costs of spare parts, and rising taxes. The devaluation the Nepalese rupee against the US
dollar in the past few months has pushed the domestic aviation industry into a very
difficult position. The cancellation of visits by tourists from North America and Europe
and the uncertain international situation will create more financial problems for the
sector.
Already battered by the global
recession, how can an industry that requires intensive capital investment expect to
survive? The recent decision of RNAC to pull out from the European sector also underscores
the challenges of operating international flights. RNAC, which incurred millions of rupees in
losses while operating in the European sector, survives by cross subsidies in various
sectors. One of the advantages for RNAC is that it is a government-owned airline. Necon's
experience with the Patna and Calcutta flights is a relevant example for private carriers. But private operators remain undaunted.
"If we are given the opportunity, we will prove our efficiency," says Birendra
Basnet, managing director of Buddha Air and one of the promoters of Nepal International
Airlines. "The government should issue license to increase the number of tourists in
the country." Other Aspects There are many technical and financial
aspects involved in the operation of international flights. How can airlines pay for
aviation fuel? How will they arrange hotels at the time of cancellations? Who will be the
guarantors of money? What are the marketing prospects? "Once private airlines are allowed to
operate, they will arrange everything. Failure of private airlines to start jet service is
the consequences of double standards and lack of political will on the part of the
government," says Maheshwor Bhakta Shrestha, an aviation marketing expert and
vice-chairman of Alpine Air, which abandoned plans to launch international flights. Some aviation experts argue that there is a
huge opportunity for international flights, asserting that the market is still
underutilized by RNAC. Those who disagree with this assessment hold the view that
high-sounding words are not enough to operate on the international sector. In any normal industry, the solution is
obvious: consolidate. But the airline business is not a normal industry, as it needs to
have fulfilled many terms and conditions before being ready to fly on the international
sector. The international aviation system is guided by the 1944 Chicago Convention. Routes
are negotiated between governments on behalf of their national carriers. A bilateral
aviation agreement between Kathmandu and Dhaka, for example, stipulates the precise number
of flights, the number of carriers and the number of destinations that can be served by
the national airlines of each country. What that means, in effect, is that airlines must
have a nationality and each nation must have a flag carrier. International Airlines Struggling even to survive in the domestic
market, Nepal's private airlines will have to face fierce competition in the international
sector. Almost all of the 15 international airlines that are currently operating
international flights to and from Kathmandu have wide-body jet aircraft and strong
financial and technical capabilities. The exception is Necon Air. Aeroflot Russian International Airlines,
Austrian Airlines/Lauda Air, Biman Bangladesh Airlines, China Southwest Airlines, Condor
Airlines, Gulf Air, Indian Airlines, Necon Air (Nepal), Pakistan International Airlines,
Qatar Airways, Royal Bhutan Airlines, Royal Nepal Airlines, Singapore Airlines, Thai
Airways International, Transavia and Dragon Air are the airlines operating international
flights to and from Kathmandu. Connecting directly to 24 cities, these airlines provide
service through variety of jet and turboprop aircraft like ATR-42, BAe 146, Boeing 737,
B757, B777, Airbus A 320, A310, A330 and A300. These airlines now connect Nepal directly
to 24 cities and offer 15,845 seats on 94 flight per week. International destinations
connected directly from Kathmandu are Osaka, Shanghai, Hong Kong, Bangkok, Singapore,
Dhaka, Paro, Lhasa, Calcutta, Varanasi, Bombay, Delhi, Karachi, Islamabad, Dubai, Sharjah,
Doha, Bahrain, Abu Dhabi, Moscow, Vienna, Amsterdam, London and Munich (charter). Nepal has signed air agreements with 32
countries, but Nepalese carriers are flying to fewer than 10 countries, including India,
China, Thailand, Hong Kong and Japan. RNAC recently suspended flights to Dubai, Frankfurt,
Paris and London. Signing an agreement is not enough to
operate airlines, as there should be firm financial viability. RNAC withdrew its flights
to Colombo, Karachi, Dhaka and Yangon after it incurred heavy losses. Even Lufthansa
pulled out from Nepal because of unsustainable losses. Necon Air suspended its Kathmandu-Patna and
Biratnagar-Calcutta flights and is now limiting its services to Varanasi. Necon Air, which
is operating services with turbo-propeller ATR-42, has to face competition with Indian
Airline's wide-body airbus. Among the 29 domestic airlines granted air
operator certificate in Nepal, Air Nepal International, Alpine Air and Nepal
Transcontinental Airlines (Freighter), RNAC and Necon Air were given rights to
international flights five years ago. Except RNAC and Necon Air, other airlines gave up
their claim. Issuing licenses to private airlines to
operate international flights would only help to destroy the well-organized RNAC. "In
the existing situation, there is no alternative to strengthening RNAC. As private airlines
are engaged in a price war in the domestic sector, operating in the highly competitive
international sector will destroy them," says an aviation expert.
The price war among commercial
private airlines in the domestic sector underlines how they might want to deal with the
competitive international environment. The private airlines have reduced their fare by
many folds. The official rate of a mountain flight is around US$ 108, but airlines are now
fetching in less than US$ 50. The fares on other routes, including Pokhara, have also been
reduced drastically due to competition. "My two-decade experiences in RNAC
show that private airlines cannot operate international flight with the existing
investment situation, lack of technical capability and market know-how. In a single flight
to Europe, an airline needs to spend more than five million rupees. If a new airline flies
half empty to Europe and other sectors, it will go into bankruptcy within a month. How it
will pay the costs of fuel, navigation and other things?" asks a senior RNAC
executive. Airlines cannot operate merely by leasing
or purchasing aircraft. In the course of operation, an aircraft has to perform certain
mechanical checks in different phases in a place certified by the aircraft manufacture.
RNAC, which has been opening Boeing 757 for the last 10 years, sends its aircraft to
Brunei for technical checks. In the case of the Boeing 767, the aircraft
has to be sent to Europe for compulsory checking. When RNAC leased Boeing 767 aircraft, it
had certain technical problems. The aircraft was sent to Vienna from Bangkok, as the Thai
capital does not have maintenance facilities. This means, for maintenance alone, the
airline has to spend millions of rupees. The private sector can operate airlines but
how will it prove its credibility. "A private airline can buy two old Russian
aircraft, but the question is, who will buy tickets on it when US and other European
airlines are adding additional facilities and upgrading security?" asks an expert. There is a popular saying in the aviation
sector that a single aircraft is no aircraft. In a situation when there is no possibility
to invest in two aircraft, it would make little sense to allow new carriers to fly on
international routes. Ground Facilities According to an estimate, Tribhuvan
International Airport (TIA) has 107 flights a week, with a total seat availability of
20,223 per week (based on winter schedule year 2000\2001). Along with regular schedule,
the airport handles more than 200 charter flights a year. According to the TIA, aircraft
movement in 2000 was 66,513, including 8,105 international flights. The international passenger movement was
1,061,343 and 853,006 in the domestic sector. The airport handled freight of 19,481.40
tons, including 2480.3 tons in the domestic sector. The last ten years' comparative chart of
passenger movement in the TIA shows an increase in volume. According to the TIA Office,
996,890 passengers were recorded, which includes 780,933 in the international sector. In
2000, passenger movement doubled, reaching 1,914,349. Aircraft movement also increased by
many folds. The TIA recorded 19,285 flights. The record of first five months of passengers
and aircraft movement in the international sector is much higher. In January, 81,716
passengers and 733 aircraft movement were recorded at the TIA. In March, April and May,
the movement of aircraft and passengers was much higher. As the runway, terminal building, taxiway
and other facilities become more congested, there is more pressure on aircraft and
passenger movement. If new airlines are allowed to operate, the country's only
international airport will have no place left. The seven aprons available in the
international terminal are now almost half full. There is only one hanger and limited
space for maintenance facilities. "A credible marketing study is needed
to understand the potential before allowing the private airlines on international
flights," says Keshav Raj Khanal, chief manager, corporate and terminal management,
at the TIA. "The authorities must study how passengers can be brought in." International Situation The deadly terrorist attacks on the United
States September 11 were unprecedented both in conception and in their consequences.
According to the World Trade Organization (WTO), as the brutality of the events continues
to haunt people, there may be more damage in the near future. Air transport companies have
been affected, in general, and US air transport companies, in particular, cancelled
domestic and international flights for several days. Air transport to North America came
to a standstill until September 13. Although flights started again gradually, to and from
the United States, it will still take months to recover. The IATA estimates that direct
losses from that week alone will amount to US$ 10 billion.
"The figure shows that new
bookings have fallen. This behavior by tourists is normal and has been observed in similar
situations in the past. How long it lasts will depend on how the conflict develops and on
the reaction of tourist services providers," says the WTO. Life isn't getting any easier for most
Nepalese private airlines. Three years of consecutive disturbances following the hijacking
of an Indian Airlines flight to New Delhi have laid bare the stark realities and
challenges facing the industry ó not just domestic but also international. Simply put,
there are so many private airlines flying too many aircraft. Interestingly, they still
want to add more aircraft in the international sector, particularly in regional areas. The solution is as simple as it is
apparent: The industry must consolidate if it is to prosper. In the West, airlines are
ready begging to experiment with radical change through international alliances and
cross-border investments. But in Nepal, the situation is different. The government is
considering whether to issue a couple of more licenses to private-sector carriers to fly
on the international sector. At stake are billions of rupees in losses, bankruptcy and
even air safety. How far are officials and entrepreneurs
willing to go? Opening the sky to the private sector does not necessarily increase tourist
arrivals. In fact, it will cause more damage to the national economy. Even a country like
India, where more than a couple of private companies have strong fleets of modern aircraft
and the capability to manage all kinds of international flights, does not allow private
carriers to fly on the international sector. Domestically, airlines can consolidate fairly
easily because domestic aviation is driven mainly by market demand, not international
aviation law. But across borders, it's a different story. If RNAC, for example, were to
take majority control of other airlines, it could lose it rights to fly between Kathmandu
and, say, Thailand because it would no longer be regarded as a Nepalese-flagged airline. But, for now, even investors are pressing
for the license to fly the aircraft, ignoring the evident compulsions. The 1944 Chicago
Convention still governs international aviation law. It stipulates five basic freedoms
that each country should respect. However, the fifth freedom, the right of a carrier to
pick up passengers outside its homeland and fly them to a third country, remains largely
unrecognized. Despite its apparent glamour, the airlines
business is pretty unattractive. The International Air Transport Association reported that
its 268 members' combined profits was about US$ 2 billion, about as much as Japan's
biggest carmaker, Toyota, earns in six months. For a capital-intensive industry, where a
single asset like a Boeing 757 costs millions of dollars, the return is pathetic. After
the terrorist attacks in the United States, all big airlines in Asia have had to suffer. For almost eight years, profit margins and
passenger yields have been on a steady mark — a trend matched around the world as
more airlines fly more flights. In the last five years, the number of private commercial
aircraft in service has grown by more than the growth in traffic. Gone — perhaps for
good — are the years that helped lift Nepal's aviation industry in the1990s. History of International Flight in
Nepal Himalayan Aviation Dakota DC-3 aircraft
operated a charter flight on February 20, 1950 from Gauchar to Calcutta that lasted 2
hours 45 minutes, the first international flight. Later, the airlines started three weekly
scheduled flights between Patna and Kathmandu. Indian National Airlines subsequently
started flights between Calcutta and Kathmandu. The government nationalized the air
transport system in Nepal to form Royal Nepal Airlines in July 1, 1958. Between 1960 and
1965, RNAC operated four international flights, including Dhaka, Calcutta, Patna and New
Delhi. Nepal entered the jet area in 1978 when the RNAC acquired its first Boeing 727-100
and extended its flight to Bangkok and Hong Kong. In 1979, RNAC brought the second Boeing
727 aircraft and expanded to six new regional routes, Dhaka, Hong Kong, Yangon, Singapore,
Karachi and Dubai. Between 1987 and 1988, RNAC acquired two Boeing 757s and extended its
international service to Frankfurt, London and Paris. The 1944 Chicago Convention Each contracting state grants to all other
contracting states the following freedoms of the air in respect to scheduled international
air services: 1.
The privilege to fly
across its territory without landing; 2.
The privilege to land
for non-traffic purposes; 3.
The privilege to put
down passengers, mail and cargo taken on passengers, mail and cargo destined for the
territory of the state whose nationality the aircraft possesses; 4.
The privilege to take
on passengers, mail and cargo destined for the territory of any other contracting state; 5.
The privilege to take
on passengers, mail and cargo destined for the territory of any other contracting state
and the privilege to put down passengers, mail and cargo coming from any such territory. |
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editor: spotligh@mos.com.np |
