It is a great pleasure to be in Delhi for this first International Aviation Summit. Thank you to the Ministry of Civil Aviation (MoCA) and the Airports Authority of India (AAI) for partnering with us to realize a day where we focus together on two things: (1) the current state of India’s aviation industry and (2) what do we need to do collectively for India to reap the economic and social benefits of a successful world class aviation sector.
Time is limited and there is a lot to discuss. So let me dive right into the topic.
First, congratulations. In early 2016 India launched its aviation strategy. This recognized the importance of aviation. And it established a policy framework intended to maximize its benefits.
This enters India into an elite club. Few states have understood that aviation is an economic catalyst and taken such a comprehensive approach. And because there is an established policy, we can be objective when looking for ways to improve. I hope that this spirit will guide our discussions today.
The state of Indian aviation is rich on contrasts.
- On the one hand we will soon celebrate 50 months of consecutive double digit growth. And all indications are that this will continue. By 2037 we expect 500 million passengers traveling to, from and within India. That’s treble today’s numbers.
- India’s airlines are preparing with 1,000 aircraft scheduled for delivery over the next eight years. And even that may be not be sufficient to satiate the thirst for travel.
- While it is easy to find Indians who want to fly, it’s very difficult for airlines to make money in this market.
The question is why?
For sure, the recent steep rise in fuel prices and steep fall in the value of the Rupee are putting acute pressure on profits. But addressing these macro-economic developments is beyond the scope of what we can influence. My members, however, also tell me that India is a particularly challenging place to do business because
- Infrastructure constraints limit growth
- And government policies impose excessive costs
These are areas that we can influence and they are fundamental. India’s development needs airlines to be able to profitably accommodate growing demand.
Focusing on infrastructure, what has happened with India’s airport infrastructure over the last decade is amazing. Congratulations on developing world-class airports—including the biggest hubs of Delhi and Mumbai. It is clear that India has the capacity to develop effective infrastructure.
But the job is not done. Passenger numbers will grow. And infrastructure must not be a bottleneck in fulfilling the needs of travelers and the economy.
So what do we need to do?
Mumbai is at the top of the priority list. As you know, historically Mumbai was the top generator of air traffic for India. But its capacity constraints have literally stopped growth. And infrastructure expansion at Delhi has enabled it to take the lead.
Developing aviation is not a race. With so much untapped potential, Delhi’s gain is not Mumbai’s loss. But as Mumbai cannot accommodate growth, the Maharashtra economy is stunted.
The solution was identified as Navi Mumbai in 2000. But we’ve seen nearly two decades of delays. The foundation plaque was only laid this year. Nobody expects Navi Mumbai to open in 2019 as planned. But the authorities must do all in their power to eliminate further delays. India’s financial capital urgently needs expanded connectivity to drive the country’s economy forward.
Looking more broadly,
technology can help accommodate growth by increasing terminal throughput with modern processes. Recent changes have eliminated the multiple stamping of bag tags and boarding cards as travelers made their way to the aircraft. While boarding passes and bag tags covered in stamps were an interesting souvenir, all travelers welcome the more convenient global standard processes that are evolving.
We have high hopes for the DigiYatra initiative. It could transform processes and leap-frog India to top of the leagues. The initiative’s pillars of—connected airports, passengers, systems and flying—align with innovations in IATA’s future vision.
Our One ID program could be particularly helpful. We want to use biometric recognition technology—like India’s Aadhar card—to eliminate the need for multiple document checks within the airport.
Would you agree that processing a passenger through an airport takes about 30 minutes today? Now, imagine the benefits to terminal capacity if technology shortens this to 10 minutes. You can see why we are very excited about this program.
Building on successful biometric trials at Bangalore airport we are eager to expand our work with the government, other airports and stakeholders to make India a leading adopter and example for others to follow.
In the air navigation field, technology can also expand capacity—particularly by safely enabling the flexible use of airspace between civil and military authorities. The opening of a conditional airway through restricted airspace over Bhuj, for example, has shaved 10 minutes off journeys between East Asia and the Middle East.
Thank you to MoCA and AAI for their solid cooperation in this achievement. Our hope is that this success story enables many more. Flexible airspace capabilities will be key to accommodating future growth.
Lastly, infrastructure funding needs a close look. Private capital fueled many of the phenomenal developments at India’s airports. Capacity has been created and service levels improved. Bravo.
That came, however, with hefty cost increases in the initial stages. We have seen the value of the independent regulator in stabilizing costs. I urge the government to preserve the independence of the regulator. But, it would be a mistake to say that the airlines are happy with the current situation. As every business person knows, competitiveness is earned each day and cost reduction is never done.
Moreover, it is no secret that our membership is deeply concerned about the outcome of airport privatizations in general. To be frank, we have not seen one privatization project that is fully living up to airline expectations for sufficient capacity, service quality and affordable costs. And a resolution was passed unanimously at our last AGM calling on governments to be cautious when considering privatization.
With that as background, we welcome MoCA’s consultation on a concession structure for greenfield airports. Careful consideration is critical and we will provide detailed comments in that process. But there are two concerns on the draft proposal that I must highlight:
- We believe that it makes no sense to fix a per passenger yield at the outset of a concession contract that is set to run for four decades. Flexible parameters should be set that are regularly reviewed by a regulator.
- And we know from bitter experiences in Brazil, Australia and elsewhere that selecting the company that simply proposes the highest bidder does not yield good long-term results.
Airports are important to passengers, airlines and the community. Dialogue is at the foundation of IATA‘s position on privatization. Decisions on privatization must balance the interests of all three stakeholders. That can only happen with robust dialogue. And we are eager to work with the government on the concession structure to define the next steps in India’s airport development.
The infrastructure issue is critical for India’s future. Band-Aid solutions will not do the job. India needs a comprehensive and strategic masterplan for its airport infrastructure. And we are very keen to collaborate with the government in building this so that India will be able to support growth with sufficient capacity, technical excellence and affordable costs.
Now I would like to turn to broader regulatory issues. Before I address our member's concerns on the high cost environment that has resulted from certain policies, I would like to address a regulatory issue related to safety.
We are eager to see the establishment of a safety regulator that has the autonomy and the independence that aviation safety requires. Establishing the civil aviation authority would achieve this and bring India in line with global standards. There was a bill to do so earlier which needs to be brought back on the agenda. Safety is aviation’s top priority. And I encourage the minister to make this important development in India’s safety oversight the priority that it needs to be.
Global standard approaches can also play a role in guiding the government to reduce India’s costly operating environment.
We have long made our case that applying GST to international tickets violates ICAO principles and India’s international obligations. These deviations from global standards may have a short-term revenue benefit for the government. But it weakens India’s competitiveness by raising the cost of connectivity. And, in its current form, airlines continue to face many compliance challenges. We need to resolve these issues soon--aligning with global standards and shoring-up India’s competitiveness.
Today, I would like to spend some time on fuel which accounts for about 24.2% of an average airline’s cost structure. In India it is 34%, making India’s carriers particularly sensitive in this area. All airlines are already suffering from the rise in fuel prices. And India’s regulatory and tax framework around fuel hits airlines serving this market even harder.
To start, there is no real competition for fuel suppliers at airports, so there is little commercial incentive to keep fuel prices competitive. Then the airport takes fuel throughput fees. And, adding insult to injury, GST is then applied to the throughput fee, the infrastructure fee and the into-plane service fee.
Then, on domestic flights, fuel is subject to excise duties and state taxes of up to 30%.
We understand that governments need tax revenue. But the economy needs financially sustainable air connectivity. The lack of competition in fuel and lack of true open-access to on-airport fuel infrastructure is strangling the lifeblood from the airlines. If you kill the goose that lays golden eggs, there are no more eggs!
What needs to be done?
- Add domestic uplift of domestic jet fuel to the GST framework with full input tax credit allowed – and I would like to recognize the efforts of MoCA, in making a strong case for the same.
- Remove the fuel throughput fee. The EU, for example, prohibits such fees, recognizing that there is no cost basis for it at the airports.
- Create competition with common-use open-access infrastructure, and
- Regulate transparency in pricing of jet fuel
- Reduce excise duty on fuel
I read with great interest that the Minister is proposing some measure to the Ministry of Finance that would help to address the acute situation in jet fuel. He has our full support.
If we can comprehensively fix jet fuel and infrastructure issues, India will be primed to take a giant step forward in the world of aviation. And, if we can combine that with more balanced airport concession contracts and regulatory strengthening, that will further support airport capacity development, affordability and traffic growth. That leadership role is in the interests of everybody in this room. We all want Indian aviation to be successful. And India’s development needs a successful air transport industry.
Although the government is in the ultimate leadership role on these issues, aviation is a team effort. Success will only be realized with broad collaboration among the government, airlines, airports and the value chain—the people in this room. This is the first International Aviation Summit--Delhi. But already I see a strong case institutionalizing this opportunity for MoCA, AAI, and IATA to come together to measure progress, plan for the future, and align the work we need to do together.
I will conclude my remarks with a personal reflection. There are many priorities in fostering the economic and social development of India. Fundamental issues of eradicating poverty, ensuring quality education, providing health care and safe drinking water are massively important agenda items. Relief efforts in the face of the tragic Kerala floods dramatically demonstrated the strong commitment of India’s airlines to the nation and aviation’s value in extraordinary circumstances. Creating a better environment for aviation to do business can and will progress the nuts and bolts of India’s development day to day.
In fact all of the UN’s Sustainable Development Goals have an opportunity for aviation to contribute. Safe, secure and sustainable air links make our world a better place. That is why I call aviation the business of freedom. And we share a privileged responsibility to work together for its success.Read press release