Need for consolidation in airline sector: CAPA

By Staff
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Google Oneindia News

Mumbai, June 13: The Centre for Asia Pacific Aviation (CAPA) today stressed the need for greater consolidation in Indian airline sector, saying it is extremely difficult for the market to absorb many new entrants.

Nearly 14 new airlines are awaiting government approval to launch operations. They include Easy Air, Trans India and Star Air.

The government, meanwhile, is encouraging regional connectivity.

''With seat capacity over-concentrated on trunk routes, massive amounts of new seats coming online has led to an extremely vulnerable industry, with carrier viability a very sensitive issue,'' said Mr Kapil Kaul, CAPA's chief executive officer for Indian subcontinent and west Asia region.

''The solution is for greater consolidation which is expected to continue in the form of strategic alliances and closures.'' The entry of Air India Express and JetLite in domestic market is expected to have a significant impact, he said.

The fundamentally strong shape of Indian economy has fuelled continuing growth of airline sector with six new aircraft entering the national fleet every month for the past two years. ''The sustainability of these increases is questionable,'' said Mr Kaul.

The consolidation in airline industry has picked up momentum in the past six to eight months. But the coming period will see more of the same through a combination of strategic alliances, possible market exits and the buy-in of the country's three largest carriers into smaller participants.

With Air India Express and JetLite (formerly Air Sahara) adding new domestic low cost capacity, the need for consolidation especially among low cost carrier (LCC) sector is very high.

Mr Kaul noted that the need for enhanced airport investment, especially at 35 non-metropolitan area airfields, and called it a critical part of the puzzle for overall sector health. After months of negotiations, Air Sahara agreed to a takeover by Jet Airways in April. Government-owned Air India and Indian have started integrating their operations after the merger. Air Deccan, the country's first low-cost airline, has offloaded 26 per cent stake in favour of Kingfisher Airlines.

The CAPA projects that India is potentially a 10 airline market consisting of two or three full service carriers, two or three large national low cost carriers operating fleets of 70-plus aircraft and three or four niche, regional operators with aircraft less than 80 seats.

In 12 months to March 31, 2007 airlines carried 35 million domestic passengers (up 38.5 per cent year-on-year) and 25.7 million international passengers (up 15.1 per cent).

CAPA research projects domestic traffic will grow at 25 to 30 per cent per annum and international traffic at 15 per cent until 2010.

Airlines in the country have about 480 aircraft on order for delivery through to around 2012 which compares with a fleet size of 310 planes operating today. Almost 150 aircraft have been added in the past two years.

''A critical feature of this growth is potential employment creation of two to three million jobs in the sector,'' said Mr Kaul adding this will be further supplemented by indirect growth in tourism and related activities.

UNI

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