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Struggle For Survival

Domestic airlines are in disarray following the increase in insurance costs

By A CORRESPONDENT

If everything goes well, private airline operators will increase their fare by an equivalent of US$ 4 in Nepalese rupees per passenger. After the terrorist attacks in the United States on September 11, insurance companies around the world have increased their surcharges by several folds, forcing carriers to pass on part of the rise to the passengers.

Although international airlines, including Royal Nepal Airlines, have already added the surcharge, depending upon the number of aircraft in their fleet, domestic private airlines are doing so now. "We have already requested the government to take the necessary decisions to share our burden," says Birendra Basnet, managing director of Buddha Air. "The airlines have to start imposing additional surcharges very soon."

Private airlines : Feeling the heat

With relatively low tourist arrivals over the last two years, Nepal's private airlines were already in the doldrums. They responded by, among other things, lowering the frequency of flights. Because of the strong competition among the private airline operators generated by the governmentís open-skies policy in the early 1990s, fares could not be increased. Now, with the cost of risk insurance increasing by several folds, private airlines have been forced to add a surcharge on passengersí tickets.

Unlike the previous two months, Nepalís airlines industry has gradually moved on the path to recovery. However, the nature of the impact the increased fare will bring remains to be seen. "If the situation goes unchanged, obviously, we wonít have to be worried. Despite the cancellations [of tourist bookings in the aftermath of the US attacks], the trend of tourist arrivals is encouraging," says Basnet.

The increase in the insurance surcharge will continue to affect the fares of international flights. According to aviation experts, the costs may go higher if the United States, as anticipated, leads a Western attack on Afghanistan in pursuit of terrorism suspect Osama bin Laden.

In South Asia, the highest insurance surcharges are on Sri Lanka-bound flights. After Tamil rebels launched a daring attack on the countryís main international airport in June, destroying about a third of the national carrierís fleet, insurance companies have put Colombo in the high-risk category.

Frequent accidents of domestic aircraft in Nepal, too, have sent wrong signals in the international insurance market. After a rise in the number of domestic accident in 1998 and 1999, insurance companies started to charge more premiums in Nepal.

To survive in what has become an increasingly tight business environment, most private airlines have already started to reduce the frequencies of their flights, hoping to save tens of thousands of rupees. Some airlines are planning to share codes while others are considering merger plans.

For most private airlines, survival itself has become one of their major concerns. With tourist arrivals declining and insurance prices, fuel prices and airport taxes soaring, by a cumulative 500 percent, according to some estimates, carriers are finding it virtually impossible to go alone.

If tourists continue to cancel their booking at this rate, some airlines may simply be forced out of business. Others would have to merge to reduce costs. Airline managers have already begun studying various ways of reducing operating and overhead expenses.

The recent terrorist attacks in New York City and Washington DC have compounded the woes of the Nepalese aviation sector, which was already battered by the six-year-old Maoist insurgency and a series of adverse events.