National 1 (Spotlight Weekly)

Struggle For Survival

With declining tourist arrivals, many private airlines are facing a severe cash crunch. Will the industry survive?

By A CORRESSPONDENT

Until a few years ago, each private airline operated a number of mountain flights and served other tourist routes. As they earned foreign currency from these sectors, they could subsidize flights to and from less profitable destinations.

The situation has changed. Foreign tourist arrivals have consistently declined, sending foreign currency earnings and profit margins on a downward spiral. A few months ago, the owners took away the aircraft operated by Mountain Air, saying the carrier failed to pay the lease charge.

Airlines business : In the crisis

The oldest private airline, Necon Air, too, is not in good shape. It has to pay huge bills in operational service charge to the Civil Aviation Authority of Nepal and the same amount to the company from which it acquired two ATR-42 aircraft. The French company has threatened to take away the two aircraft if Necon did not pay the lease charge as per the agreement. A few weeks ago, senior officers from the company visited Kathmandu to study the situation.

While Mountain Air has already gone out of operation, the other airlines that fly new aircraft with relatively high operational costs are certain to face economic problems. At a time when the global tourism industry is yet to rebound, Nepal cannot expect good news. Even if the international scenario changes, Maoist violence and political instability are going to limit tourist arrivals. The private airlines are bound to face economic problems, with some of them pushed to brink of bankruptcy.

Some private airlines have demanded some sort of bailout, but the government is in no position to do so. Even government-owned Royal Nepal Airlines is virtually on the course of bankruptcy. Although it has seven Twin-Otter aircraft for domestic flights, only four are operational. Minister of Culture, Tourism and Civil Aviation Kuber Prasad Sharma recently declared that RNAC was running a debt of about Rs.2 billion.

Whether during the good tourist season or bad, the airline industry continues to crumble. In the last eight years, three major airlines have closed down. Everest Air was first to go out of service. Then it was Nepal Airways' turn, followed by Lumbini Air, Flight Care and Mountain Air. Helicopter operators like Manakamana and Himalayan followed suit. Among the 29 firms permitted to operate domestic flights, only Necon Air, Buddha Air, Cosmic Air, Gurkha Airlines, Yeti Airways, Shangri-La Air, Sky Line Airlines and Royal Nepal Airlines have regular flights.

Fishtail Air, Air Ananayan, Asian Airlines, Manang, Karnali Air and Dynasty Aviation are operating helicopter services. Although some airlines with relatively old and low-cost aircraft can expect to survive by reducing unnecessary financial burdens, it will be impossible for others to do so.

In the last year, almost all private airlines have announced pay cuts, lay-offs, and other cut-cutting measures, but they seem to be inadequate. The airline industry is very capital-intensive sector and requires heavy investment. The rise in operation costs, fuel costs and insurance risk costs have increased the overall burden on all the airlines. "It will be very difficult for the private airlines that operate new aircraft to survive in a competitive market," says an aviation expert. "But they need to introduce modern aircraft in a situation when the business is not supportive."

Nepalese airlines, both privately owned carriers and RNAC, have been passing through very difficult time. If things remain unchanged for long, many carriers would be forced to declare bankruptcy, sending shock waves across the wider economy.