A spurt in air fares on the Gulf routes during Ramazan and Onam festivals has prompted the Kerala government to revive a seven year plan to launch its own airline but the move will end up hurting Air India Express which earns nearly 60 per cent of its revenue comes from Kerala, according to aviation experts.
Air India Express currently flies 145 daily flights down from about 200 flights about six months ago. The flights have been curtailed owing to various reasons such as DGCA's new flight duty rules, crew shortage and recent diversion of two of its planes for Haj charters. It operates to ten destinations in the Gulf from Kerala and its busiest routes are to Dubai, Abu Dhabi and Sharjah. However AI Express has been increasingly facing competition from other Gulf low-cost airlines such Air Arabia and Bahrain Air as well Indian carriers such as Jet Airways.
Last week Kerala chief minister Oommen Chandy announced that government will launch Air Kerala to link the state with Gulf and added that the government will seek a waiver from civil aviation ministry as the rules require airlines to have minimum five years service and a fleet of 20 planes to launch international flights.
|Airlines flying on Kerala-Gulf routes
||AirArabia , Bahrain Air, Emirates, Etihad Airways, Gulf Air, Kuwait Airways, Oman Air, Qatar Airways, RAK Air, Saudi Arabian Airlines
||Air India Express, Air India, IndiGo, Jet Airways
According to Chandy the initial investment for the project is expected to be about Rs 200 crore. Kerala government and Cochin International Airport Limited (CIAL) will hold 26 per cent stake and the result will be held by private individuals and non resident Keralities in form of equity share of Rs 10,000 each. NRI businessmen YusuffAli (who runs LuLu hyper market in Gulf) and Ravi Pillai have shown interest in the venture, it is learnt.
While the immediate trigger for the project's revival has been the frequent cancellation of Air India Express flights to Gulf and resultant sharp rise in fares (some Kochi-Dubai return tickets were on offer for Rs 70,000 in August), CIAL managing director V J Kurian is optimistic that growing passenger demand in the state will boost the airline.
"International air traffic at Kochi has been growing by 10-12 per cent for last few years," says Kurien. Kochi handles 4 million passengers annually including 2.2 million international passengers. Thiruvananthapuram and Kozhikode handle 3 million and 2.2 million passengers (domestic and international).
Kurian, added, "Apart from helping the NRI shareholders, another aim behind the move to widen the potential of Kerala tourism. Airlines play key role behind the success of global tourist destinations such as Dubai and Singapore. We are expecting a similar success story through the operation of Air Kerala."
Capt G R Gopinath who launched Air Deccan, India's first low-cost airline, is critical of government stepping into aviation business.
"I don't think it is a good idea. They should create an ecosystem and facilitate businesses to thrive and compete, encourage private sector without allowing cartelisation. Governments should focus on good governance and not be in business. It has failed in India and rest of the world. And of all businesses, airlines are the toughest and government should stay clear," Gopinath told Business Standard.
"Aviation is a capital-intensive business and is highly competitive in nature. It requires quick decision making. In India government organisations do not enjoy autonomy and thus impacting their performance," he added.
V Thulasidas, former managing director of Air India said if current problems in Air India Express are sorted out there will be no need for Air Kerala. According to him Air India Express itself was created to cater to the travel needs of migrant passengers from Kerala.
Other Air India executives are more categorical. "Air Kerala will end up driving away passengers from Air India," an executive remarked. The situation would be similar to be pre-merger days when both Air India and Indian Airlines competed on certain international routes. About 60 per cent of Air India Express capacity and its revenue come from Kerala and its business would be impacted the most. Others point out to the present state of affairs in Air India and said that Air Kerala too may meet the same fate.
Kurian however defends the move. "Air India is not bothered when SpiceJet, IndiGo and Kingfisher start flights. It is unfair when there is talk of Air Kerala they say it will impact Air India," he said.
Asked about the losses in aviation sector and charges of populism he replied "You have airlines like Air India and Kingfisher and on other hand you have IndiGo and SpiceJet. You see Air Asia and Tiger Airways are doing well. Emirates is making a profit. There is no reason why we can not do well. Let us not make judgments now. It all depends on whether an airline is efficient and run cost effective operations. We have a track record at CIAL and have been making profit since 2003. There should be no reason why we will not do well now."
"We have asked Ernst & Young to update detailed project report on the airline and we expect it in three months," Kurian added. A project report on Air Kerala was prepared in 2005. Back then CIAL was keen to get an "anchor airline'' to boost traffic at the airport and Air Kerala Ltd was registered as a company in 2006. But following a change in guard in state the project went into limbo.