NATIONAL8 (Spotlight Weekly]

Turbulent Times

Amid a sharp decline in tourist arrivals, the aviation industry is gasping for breath

By A CORRESPONDENT

Nepal's private airlines, once touted as successes of deregulation and economic liberalization, are passing through a very critical phase, as the prospects for the tourism industry's recovery appear increasingly elusive. In their quest to survive in what has become a global extension of turbulence, Nepalese airline companies are trying different ways of reducing costs.

But few of the country's 15 private airlines are in a position to survive, industry watchers say. If the government does not come out with vital measures to revive the wider tourism industry, many private airlines would be forced to declare bankruptcy.

Private helicapters at TIA : Business in down

Nepal's private carriers have been in trouble for some time. In the last four years alone, more than half a dozen companies have closed down. Admittedly, the operators would be better off closing down, as they would have little to lose. However, since a large number of airlines have borrowed money from commercial banks, it is the larger financial system that would have to face the consequences. "If the airline companies close down, the banks will have to suffer. Ultimately, it is the public money that will be lost," says an insider who is auditing the banking sector.

"At a time when many airlines around the world are being bailed out by their governments, Nepal's private carriers are looking for similar protection," says an aviation entrepreneur. However, with the government barely able to fund regular expenditures through the revenue it collects and the defence budget in a seemingly endless upward spiral, officials would have a difficult time drawing up any purposeful relief package.

Following the implementation of the open-sky policy a decade ago, the government issued licenses to several private-sector operators to compete in the domestic sector. Although many of these carriers soon established themselves on the more popular internal routes, they continue to rely heavily on mountain flights, which usually target foreign visitors. With the fall in tourist arrivals in recent years, the profit margins of private airlines have gone down.

The government has taken steps to promote tourism as a public-private partnership. Despite the government's decision to promote 2002 as Nepal Destination year, however, there are few possibilities of a drastic improvements in tourist arrivals. As hotel bookings continue to display negative trends, the private airlines are finding their room for manoeuvre shrinking very fast.

In response to the declining tourist arrivals, private carriers have reduced the number of flights by up to 40 percent. As the number of flights goes down, airlines are finding themselves swamped with employees they don't have enough work to give. Some companies have asked employees to take compulsory leave without pay.

According to a private airline operator association, Nepal's 15 private airlines are employing more than 3,000 people. More than 450 have lost their jobs. Shangri-La Air has laid off 60 employees and other airlines are on the same path. Necon Air is considering laying off 69 employees. "Necon Air is seeking permission from the Department of Labor to dispose of surplus employees," says a senior Necon Air official on condition of anonymity.

Because of relentless political instability, the royal palace killings and the September 11 terrorist attacks in New York City and Washington DC, Nepal's tourism sector was severely battered last year. Official figures suggest that tourist arrivals plummeted by 20 percent.

The government may still be able to forestall a collapse by announcing a comprehensive relief package for the airline industry by mobilizing the resources it does have. But time is running out.