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IATA quantifies Indian market's huge potential but questions FDI rules

24-Sep-2010 8:11 AM

IATA stated (23-Sep-2010) that while some of India’s carriers are now reporting profits, the Indian sector as a whole is still expected to post a loss of USD400 million in 2010, with the nation's carriers carrying a debt burden of USD13 billion. Director General Giovanni Bisignani also noted the tremendous potential for Indian aviation which has a market of 42 million passengers domestically p/a and a further 34 million internationally. "If Indians flew as much as Americans, it would be a market of over 4 billion passengers. With the spending power of Indians set to triple over the next two years, the potential for growth is incredible," he said. IATA also called for a more coordinated cross-ministry government approach to shoring-up the gains made in India’s aviation industry, and outlined the following key areas requiring special attention: 

  • Safety:  IATA cautioned that “India’s rapid growth must be accompanied with a strong focus on safety" adding that establishing the Civil Aviation Safety Advisory Council (CASAC)  is an important step forward. He added that he would strongly encourage CASAC to recommend that the IATA Operational Safety Audit (IOSA) is mandated for all India’s carriers; 
  • Infrastructure: Mr Bisignani commented that infrastructure developments in Delhi mean that "for the first time India has a hub that could rival Singapore or Dubai, with plans to accommodate 100 million passengers by 2030". However, he expressed concerns over Mumbai, stating it is in need of a 100 million passenger plan to support the airport's future growth; 
  • Liberalisation: Mr Bisignani criticised the current foreign direct investment (FDI) approach to aviation, stating there is a "difficult to understand" inconsistency that airline FDI is restricted to 49% while a 100% FDI exists in other industries. He also criticised the present situation that no foreign airline can invest in an Indian airline, stating this regulation could comprise the success of India’s airlines;
  • Policy coordination: IATA stated that to build competitiveness, it is critical that the costs of operating in India is reduced. IATA commented that while AERA, the airports regulator, has set a "positive precedent" by upholding ICAO principles and disallowing automatic cost increases for the airports in Delhi and Mumbai, the Ministry of Finance has added USD236 million to the cost of operating in India with an extension of India’s 10.3% service tax from international premium tickets to economy and domestic travel as well, which Mr Bisignani stated is in contravention of the International Civil Aviation Organisation (ICAO) rules; 
  • Security: Mr Bisignani noted a disconnect on security, with India not following global security standards, approved through ICAO, and instead investing their own unique requirements and processes, which he stated adds complications and complexities, resulting in additional costs, while not improving security;
  • Environment: Mr Bisignani re-assured that a global framework for aviation’s emissions under ICAO would be in India’s best interests, adding that the global agreement on aviation at ICAO will not compromise India’s position on Common But Differentiated Responsibilities (CBDR) in non-aviation discussions. [more - Press Release] [more - Speech]

IATA: "In stark contrast to Minister Patel’s pragmatic liberalisation is the old world approach to foreign direct investment (FDI) in aviation by the Ministry of Commerce. India allows 100% FDI in transit systems, ports, harbours, hotels, ocean transport and road systems. But airline FDI is restricted to 49%. Moreover, no foreign airline can invest in an Indian airline. The inconsistency is difficult to understand. Does it make sense that a non-Indian airline can own 100% of a greenfield airport project, but cannot invest a single rupee in an Indian airline? The success of India’s airlines should not be compromised by an archaic investment policy that isolates them from global trends,” Giovanni Bisignani, Director General. Source: Company Statement, 23-Sep-2010.

IATA: "Developments in Delhi are impressive. For the first time India has a hub that could rival Singapore or Dubai, with plans to accommodate 100 million passengers by 2030 ... But where is Mumbai’s 100 million passenger plan? We must find a solution that is environmentally responsible. The clock is ticking and a conclusion is urgently needed. Mumbai is a great city. However history tells us that no city can remain great without effective transport links. It is time for all parties to work together to agree on a site and get on with it,” Giovanni Bisignani, Director General. Source: Company Statement, 23-Sep-2010.

IATA: “In a market as rich in potential as India, the precarious financial situation indicates that structural weaknesses must be dealt with ... Under the leadership of Minister Praful Patel, international flight frequencies to India have tripled to nearly 2,300 per week. India is more connected than ever to our globalised world, bringing enormous economic benefits. This has challenged all those involved in India’s aviation industry to improve competitiveness. In recent years, there have been some great improvements. But there is still much more to be done. It’s time for a comprehensive approach with a common vision by all involved ... I am a great fan of India. To support the amazing developments that are happening under the leadership of Minister Patel, IATA continues to expand our India operations ... this could be the decade when Indian aviation will reach its potential. But there are no guarantees for success without continued hard work, change and a common vision for success shared across government and with the industry. India has come a long way in addressing the challenges of growth. The foundations for success are half-laid and IATA will continue its support to help finish the job,” Giovanni Bisignani, Director General. Source: Company Statement, 23-Sep-2010.