Page 12 - AAA MARCH - APRIL 2019 Online Magazine

ture – if you want to call it that – manpower, But then there are many airlines that are struggling to be profit-
pilots, air traffic controllers, mechanics, flight able. And if they do not succeed in restructuring then the finance
attends. AAPA is drawing attention to it and we dries out or they go bankrupt. We see examples of this right now
are pulling together from other people’s esti- in India. The market is growing graphically but in the last year or
mate of what the projected growth and demand so, all the airlines are struggling to make money. Jet Airways is in
is. Some productivity improvement but still we desperate need of additional financing and is negotiating to have a
are going to need more people – that means new capital injection. In the meantime, it’s facing a lot of pressure.
training requirements. It has implications for Even the most successful airlines like IndiGo and Spice Jet which
education in the country’s national curriculum have been profitable are now breaking even. It’s a reminder that
and so on. We are trying to emphasize that growth itself doesn’t deliver profitability. India is the fastest growing
aviation is a growing sector. One that creates market and yet the profits are non-existent. It’s a reminder of just
high-value job. A lot of them being technical how challenging the industry is.
related.
What needs to be done to meet the projected
One thing we are very conscious about is passenger growth?
encouraging women think of themselves as We talked about infrastructure. The key thing is do people want
pilots and mechanics and other opportunities. to travel or is it just a wishful thinking on the part of the industry?
There are a lot of opportunities in aviation and If you look at Boeing and Airbus aircraft forecasts, it seems to be
we are trying to convey that message to the correct. The market is growing at that pace. The demand for travel
government that it is a growth sector where is increasing. It seems to be a universal human trait to wanting to
and there needs to be a thinking, for creating travel and wanting to explore the world and that is regardless of
more jobs. Tourism is another aspect that has political background or geography.
a lot of opportunities. So, the opportunity to
modernise, earn foreign currency because of The limiting factor is income. But there is an aspiration to fly and
inbound tourist creates good job for people as soon as people reach a particular threshold, air travel begins
and some of those jobs are high-value added.
to take off. That dynamic is going to continue and reflects on the
What are the challenges towards increasing demand. The issues therefore is infrastructure. If we
don’t provide the infrastructure, it degrades the service to the
sustainability and in maintaining existing customer base and makes them less willing to travel or
long term profitability? travel more. And if you really don’t provide the capacity, people who

Sustainability is primarily environmental do want to travel face challenges. In some parts of the world this
sustainability. There are other issues too – infra- situation does exist – there aren’t enough runways, aren’t enough
structure, noise etc. You mentioned profitability. terminal capacity. So that’s the key strategic challenge.
This is a very competitive industry and profit-
ability even in good years is modest. A typical Building runways isn’t easy. Only governments can give planning
profit margin is 5 per cent, which compared to permissions. People want to use airports near where they live.
some other industries is a very modest profit On the other hand, airports cause some noise. So, it’s a tradeoff
margin. And, not all airlines are profitable. The between the convenience of access versus the environmental
American carriers have been enjoying several impact. The problem is a lot of airports were built out of town in
years of good profits and have had higher profit the open county side but the development happened around it. It’s
margin. a paradox. No one wants to live near an airport and a lot of people
want to work around the airport because of lucrative business
For Asian carriers, European carriers, it’s a opportunities.
mixed picture. Within different areas, even Long-term growth is the big challenge. It has to be airlines, airports
within Europe, you will see a lot of variety – and governments, who have to work together to coordinate the
some being very successful, some less so and decisions. The funding can be from private sector or government
some airlines failing and going bankrupt and funding but you will always need the government to mastermind
being taken over. The same in Asia. We see the coordination.
a wide range of performance level. In Asia the
profit margin is about $5 to $6 per passenger. What is your outlook for the Asia Pacific
Which is pretty modest compared to what is region in 2019?
involved in delivering. We joke that how much It’s reasonably optimistic. There would be about 3-4 per cent growth
money did people make selling tea and coffee! for air cargo. Passenger would be much stronger. Although it got off
You have to work very hard to have a profit to a slow start, I would still expect to see a little bit of growth in air
margin of 5 per cent. If you are very success- cargo, say about 3 to 4 per cent growth. But nothing as dramatic
ful you will have a 10 per cent or 15 per cent as 2017. Probably slower than last year. We also have to keep a
margin. And some airlines are making that sort look out on the global trade issues.
of margins.

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