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Launch of BB Airways as Nepal's second international carrier shakes up Kathmandu market

6th November, 2012

Nepal saw the addition of a new airline in Oct-2012, with BB Airways becoming only the second Nepalese carrier to operate internationally from the country. BB launched services on 11-Oct-2012 with four weekly flights to Kuala Lumpur and three weekly flights to Hong Kong using a Boeing 757-200.

Prior to BB Airways’ entry, Nepal Airlines was the sole Nepalese airline providing scheduled international services from the country, to just four international destinations. The launch of BB Airways has the potential to transform international connectivity to/from Nepal. The carrier has already obtained rights to operate to seven international destinations, which it plans to serve with a fleet of two 757-200s. BB Airways also aims to eventually acquire two 767s for use on another six routes, including long-haul destinations in Europe and Australia.

The launch of BB Airways could help rebalance the international market to/from Nepal. The Nepalese market is now dominated by foreign carriers, particularly those from the Middle East and India, with Nepal Airlines accounting for only a 7% share of international capacity to/from Nepal prior to BB's launch.

Nepal international capacity share (% of seats) by carrier: prior to launch of BB Airways

Qatar Airways is the largest international carrier in Nepal, operating four daily flights between Kathmandu and Doha. Jet Airways and Air India are also larger than Nepal Airlines, each generally operating three daily flights to Kathmandu.

Nepal Airlines currently only operates 15 weekly international flights, including six to Kuala Lumpur, four to Doha, three to Hong Kong and two to Bangkok. The carrier also uses 757-200 aircraft on all international services. Foreign carriers currently have more capacity than Nepal Airlines in all four of its international routes, according to Innovata data.

Nepal Airlines has seen a dramatic slump in international passengers over the last decade as it has cut several routes and frequencies in its remaining markets. Back in 2001, it was the largest international carrier in Nepal, with a nearly 30% share of the market.

The flag carrier recorded  83,760 tourist arrivals in 2001 but only 16,623 tourist arrivals in 2011. During the same time period most airlines operating into the country have reported strong growth. Foreign carriers accounted for 528,598 tourist arrivals in Nepal in 2011, an increase of 145% compared to the 215,754 tourist arrivals that foreign carriers recorded in 2001.

Tourist arrivals to Nepal by carrier: 2001 to 2011

As Buddha Air, the largest domestic Nepalese carrier, has noted, foreign flag carriers “are unrivaled, as Nepal Airlines cannot operate on same terms against those international Airlines”.

Similarly, BB Airways chairman Bhaban Bhatta has said that Nepalese carriers’ share of the market to international destinations is less than 10%, with these routes dominated by overseas airlines. "Considering the bitter truth that the number of Nepali carriers that served international destinations failed to be sustained in past years, we have moved forward and aspire to establish BB Airways as a true flag carrier of Nepal," he said.

Nepal dependent on tourism and air transportation, promoting private sector operations

Nepal Prime Minister Dr Baburam Bhattarai, inaugurating BB Airways’ first service on 11-Oct-2012, expressed confidence that the start-up would help boost tourism in the country, adding that the Government was ready to provide any privileges to BB Airways that Nepal Airlines enjoys, as it seeks to promote private sector operations. 

The demand for air services in Nepal has grown following the restoration of multiparty democracy in 2008. The economic liberalisation laid the foundation for new investments resulting in the growth of the service sector and infrastructure development.

The local market is primarily served by small regional carriers due to the country's mountainous geography (more than 90% of the nation’s land area is covered by mountains), with the country’s rail and road networks being a poor travel alternative. The country is now seeking to enhance its international connectivity amid continued tourism growth in the picturesque country. However, despite the rise in visitor numbers, tourism revenues, an important part of the nation’s economy, are not rising to a similar extent and the nation’s poorly performing carriers are facing a rising threat from larger rivals across the border in India.

Tourism sees double-digit growth but tourism revenues not keeping pace

In 2011, Nepal received 736,215 tourists, a 22.1% year-on-year increase, with 545,221 of these arriving by air (+21.5%), according to Nepal’s Ministry of Culture, Tourism and Civil Aviation. But tourism revenue increased by around half this level, up 11.8% year-on-year to USD368.77 million. (Nepal Airlines reported a 20% increase in revenue in 2011 to approximately NPR2 billion (USD335 million)).

Average income per visitor per day similarly decreased 11.6% in 2011 to USD38.2. The Ministry noted that “tourism is one of the potential sectors for the economic development of Nepal”, with benefits from tourism including being a “major source of employment in both urban and rural areas” and helping “reduce poverty levels” in the country. The largest tourism markets for Nepal is India (27% of the total), with China, US and UK having smaller market shares in the 6-8% range in 2011.

Nepal tourist arrivals by nationality for top 10 markets: 2011 vs 2010

Nepal tourist arrivals market share (%) by nationality for top 10 markets: 2011

In Aug-2012, visitor arrivals to Nepal by air increased 2.5% year-on-year to 44,571. The Indian subcontinent accounted for 16,780 of total arrivals (+4.2%), followed by Europe (12,214, +6.1%).

Nepal monthly tourist arrivals by air: Jan-2010 to Aug-2012

Despite the importance of the tourism sector, tourism continues to be affected by political, security and safety concerns. Infrastructure also remains underdeveloped and a lack of direct services to/from US and Europe is limiting the nation’s tourism potential.

Passengers travelling to/from these destinations have to deal with long transit hours travelling via other hubs and airlines. Nepal Airlines used to offer direct service to key European cities including Frankfurt and London but cancelled these routes several years ago. 

Meanwhile, the World Economic Forum’s Travel and Tourism Competitive Report (TTCR) 2012 ranked Nepal 112th out of the 139 countries surveyed, highlighting the need for improvements in the sector. Nepal remained in the same place as in 2011, however previously did move up six places from the 2009 survey, showing a slight improvement in travel and tourism competitiveness.

Based on the findings from the 2011 report, it was noted that while Nepal has a competitive advantage in areas such as World Heritage, natural sites, ticket taxes, airport charges, hotel prices, attitude of the population towards foreign visitors and visa requirements, there are several areas of weakness that have contributed to Nepal’s overall low ranking. These include safety and security, which are of “grave concern”, health and hygiene concerns (ranked 102 out of 139), and the state of Nepal’s infrastructure which is “among the worst” (ranked 135 for ground transport infrastructure and 116 for the quality of its air transport). Availability of qualified labour is very low (ranked at 129). Meanwhile, factors such as low ATM penetration and lack of car rental facilities also contribute to the low rank in business environment and infrastructure, and also have an impact on tourism levels.

Nepal’s aviation safety record is particularly poor, with 96 people having been killed in six crashes in the past two years. Nepal ranks towards the bottom of the International Civil Aviation Organization’s audit report of the Asia Pacific region for 2011 at 25th out of 26 nations. Nauru stood at 26th position. Poor training, weak regulation and a challenging mountainous environment have contributed to this unenviable situation. The crashes, more than one of which have involved Agni Air, involve small turboprop aircraft with around 20 seats, rather than larger jet aircraft.

Economically, Nepal is among the poorest and least developed countries in the world, with around one third of its population living below the poverty line, according to the CIA World Factbook. Additional challenges to Nepal's growth include its landlocked geographic location, civil strife and labour unrest, and its susceptibility to natural disasters.  However, Nepal is now passing through a transition following a 10-year conflict. Growth is estimated to increase to almost 5% in 2012 as noted by the World Bank. The next few years are critical if Nepal is to build on its success, managing its transition while confronting development challenge.

A majority of Nepal’s population lives in remote villages in the rugged hills most of which lack proper roads. In this geographically difficult terrain, building roads is a lengthy and costly challenge. Although surface connectivity is expanding it remains unreliable and an increasing number of people are now depending on air transport. Kathmandu is the only city that has direct international air links and is connected to all the domestic airports in the country.

Seven international destinations on the agenda for BB Airways

BB Airways commenced operations with four times weekly Kathmandu-Kuala Lumpur and three times weekly Kathmandu-Hong Kong service. With the carrier's new service, there are now a total of 14 weekly services from Kuala Lumpur to Kathmandu. Malaysia Airlines (MAS), AirAsia X and Nepal Airlines also operate the route. Nepal Airlines operate the route six times per week with 757-200s while MAS and AirAsia X each operate three weekly flights with 737-800s and A330s, respectively.

There are now 13 weekly flights between Kathmandu and Hong Kong. BB Airways has joined incumbents Dragonair and Nepal Airlines on the route. Dragonair operates a daily service on the route using A330s while Nepal Airlines operates three times per week with 757-200s, providing the same amount of capacity as BB Airways. 

Prior to the launch of scheduled services on 11-Oct-2012, BB Airways launched charter services on 12-Sep-2012, with flights between Kathmandu and Siem Reap in Cambodia. The carrier originally planned to launch with a Kathmandu-Taipei service, but due to regulatory issues it operated to Siem Reap instead.

Mr Bhatta said earlier this year that the carrier received its Air Operating Certificate (AOC) on 12-Apr-2012 with a license for operations to seven international markets from Nepal: Kuala Lumpur (four times weekly), Bangkok (three times weekly), Hong Kong (three times weekly), Singapore (three times weekly), Doha (five times weekly), Delhi (seven times weekly) and Tokyo (twice weekly).

BB Airways plans to set launch dates for Bangkok, Singapore, Doha, Delhi and Tokyo once it receives its second 757-200. With the exception of Tokyo, all these destinations are already served from Kathmandu by other carriers.

BB Airways competitors on current and planned routes: 05-Nov-2012 to 11-Nov-2012

Destination

Other operators

Frequency

Kuala Lumpur

Nepal Airlines

AirAsia X

Malaysia Airlines

Six times weekly

Three times weekly

Three times weekly

Bangkok

Thai Airways

Nepal Airlines

Daily

Twice weekly

Hong Kong

Dragonair

Nepal Airlines

Daily

Four times weekly

Singapore

SilkAir

Five times weekly

Doha

Qatar Airways

Nepal Airlines

Four times daily

Four times weekly

Delhi

SpiceJet

Air India

Jet Airways

IndiGo

JetLite

11 times weekly

Two times daily

Two times daily

Daily

Two times weekly

Tokyo

-

-

The Bangkok and Doha routes are already served by two carriers, Nepal Airlines as well as Thai Airways on Bangkok and Qatar Airways on Doha. Singapore was previously served by Nepal Airlines but is now only served by SilkAir.

Delhi is currently served by five Indian carriers – Air India, IndiGo, Jet Airways, JetLite and SpiceJet. Delhi is by far the biggest international market from Nepal, with about 16,000 weekly seats. But the fact that five Indian carriers including three LCCs are already competing on the route could make it challenging for a Nepalese carrier to enter.

Delhi is the only one route BB Airways plans to serve daily. Nepal Airlines is also planning to resume service to Delhi in early 2013. As a result the market could become intensely competitive in 2013 with seven carriers operating a combined nine daily frequencies.

BB Airways proposed and approved future network

BB Airways is one of a number of new ventures in Nepal that are aiming to develop a reliable domestic and international network to boost economic and tourist trade into the country. BB Airways, perhaps optimistically, is seeking to address this misbalance in international operations to/from its home country. One of the carrier's objectives is to achieve market share of 20% within five years. Another objective is to restore aviation links between Nepal and Japan.

The Nepalese carrier is backed by Japanese investment company TBI Group, led by Nepalese expatriates with interests in publishing and alcohol production. BB Airways is currently operating just one 757-200 aircraft, configured with eight business and 194 economy seats, according to its website, with a second 757 to be added to the fleet soon.

BB Airways has ambitions to serve Europe and Australia with 767s

With the arrival of the second 757, the carrier aims to launch services to Bangkok, Singapore, New Delhi and Doha. Under the carrier’s strategic plan, two 767s will also be added and used to launch services to Shanghai, Frankfurt, London, Seoul, Sydney and Lhasa. Of these six potential additional markets, only Seoul is currently served from Kathmandu with two weekly flights from Korean Air.

NRN Association chairman Jeeva Lamichhane said that BB Airways would prove a milestone in tourism promotion in the country. Mr Bhatta noted that while the carrier, to be operated by a Nepali-Japanese management team, is a legacy carrier, it “will be competing with budget airlines in providing the most competitive airfare to our valued passengers”.

Nepal Airlines could be impacted by BB Airways launch

BB Airways, the first private airline in the country permitted to carry the national flag of Nepal, could quickly become the largest airline in the country and put pressure on the government-owned flag carrier. All four of Nepal Airlines' current international routes will soon be served by BB Airways.

Nepal Airlines (formerly known as Royal Nepal Airlines), has reduced its international network over the past couple of years due to operational issues with its two 757-200s as well as financial problems. Nepal Airlines continues to struggle financially as it has felt the impact of mismanagement, industrial unrest and an ailing work culture, combined with political bickering that has undermined the carrier’s operations.

The flag carrier has seen some drastic network cuts, although it is now seeking to improve its position. It is now planning to increase domestic services following the Ministry of Culture, Tourism and Civil Aviation’s decision to acquire six new aircraft from China's AVIC Holdings. Nepal Airlines is also planning to add two aircraft for international routes.

The new aircraft are part of the Nepalese Government's Immediate Governance and Economic Action Plan-2012, incorporating 200 initiatives under 15 important public sectors. In the initial stage, the government will purchase four aircraft on soft loan, while two aircraft will be on grant, as per a principle agreement, according to secretary of tourism ministry Yajna Prasad Gautam. These six aircraft include the 58-seat Xian MA-60 and 19-seat Harbin Y–12 turboprop aircraft, with the first two aircraft scheduled for delivery from Jan-2013. “We are waiting for the cabinet to give its final approval for the procurement procedure and agreements with the Chinese government regarding the aircraft purchase,” Mr Gautam said in Oct-2012.

The Office of the Prime Minister also requested the carrier to revive an agreement to acquire two Airbus aircraft for international services. “We are quite overwhelmed with the government’s initiative to purchase new aircraft,” said Nepal Airlines director commercial Madan Kharel, adding: “We had urged the government to provide new aircraft to expand our fleet for the domestic market, and to survive in the growing competition with private airline companies. We will now have the opportunity to grab market share with both quality and quantity".

The flag carrier has said it aims to resume Delhi service in Jan-2013. Two more Indian destinations, Gaya and Patna, are also slated be added to its network. Kathmandu-Gaya is now served by Bhutan's Druk Air while Kathmandu-Patna is not currently served by any carrier, according to Innovata data. 

Buddha Air – Nepal’s largest carrier

Buddha Air, meanwhile, is the largest domestic carrier in Nepal. Buddha Air also operates charter services to Paro in Bhutan and has previously operated to Varanasi in India. Services are operated with a fleet of nine aircraft, comprised of three Beech 1900Ds, three ATR 42-320s and three ATR 72-500s.

Buddha Air fleet: Nov-2012

Buddha Air network as of Nov-2012

Buddha Air is a private, family-owned airline and travel company founded in Apr-1996 and commencing operations in Oct-1997.

Nepal has several smaller domestic airlines, including Agni Air, Flying Dragon Airlines, Goma Air, Gorkha Airlines, Guna Airlines, Makalu Air, Mountain Air, Shree Airlines, Sita Air, Tara Air, and Yeti Airlines.

Nepal is progressively enhancing its international connectivity and domestic operations amid continued tourism growth in the picturesque country. With a second international airport planned and efforts being made by Nepal Airlines to expand its fleet and network, combined with the launch of BB Airways, continued expansion in air services to/from and within Nepal is likely. However, the expected expansion of Nepal's aviation market will not be without its challenges.

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