Abrand new domestic airline will take to the Indian skies in the next few months. Fly91, named after India’s country code 91, is being promoted by former executive vice-president of Kingfisher Airlines and the man who set up the India business of Fairfax group.
Aviation veteran Manoj Chacko was the executive vice president at Kingfisher, chief operating officer and CEO, business travel at travel company SOTC besides serving at the top executive position on Vijay Mallya’s ill-fated but once premiere Kingfisher Airlines. He has joined hands with Harsha Raghavan, former India head of Prem Watsa’s Fairfax Financial Holdings to give wings to the regional airline Fly91.
The Economic Times reported that the promoter company Just UDO had last week applied for the initial no-objection certificate (NOC) with the civil aviation ministry. The Goa-based airline aims to take to the skies starting September with two aircraft and scale up to 6 in the first year and add 32 planes in 5 years of its operation.
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What are regional airlines?
Last year in August, new airlines Akasa Air launched flights on the Mumbai-Ahmedabad route. That made Akasa India’s eighth domestic airline, not counting regional airlines. Regional airlines like Alliance Air, FlyBig, StarAir etc – usually offer connectivity to places and communities that lack sufficient demand for major airline services.
News agency ANI reported that Fly91 will operate in the short-haul segment – flights of 45 to 90 minutes duration. The airline will be based in its Goa hub and aim to connect underserved airports (from where 30% of India’s domestic traffic originates) as per the Centre’s Regional Connectivity scheme.
Why do airlines make losses?
It is common knowledge that aviation is a loss-making business. At least 55% of airline income is spent on expenses over which they have no control. These are factors like fuel, lease and rent (majority of airline assets are on lease including aircraft, engine, spare parts, airport premises) and airport charges. In fact, airlines spent 30% of their income on costly Aviation Turbine Fuel (ATF).
Airlines have control on employee salary and benefits and interest payments (since most airlines operate at a loss, they maintain their cash flows by sourcing short term debts and have to pay out interest on these loans). Therefore, airlines have limited elbow space to cut costs. If they reduce salaries or loans this results in unhappy staff and stakeholders.
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Why bet on aviation then?
Airlines may make losses but the aviation sector in India appears bright. India is now the third-largest aviation market in the world and the sector is expected to grow at a compound annual growth rate (CAGR) of 5.8% for the next 20 years.
India’s geographical position and relevance in the South Asia as well as its capacity to draw tourists has given a boost to air travel to the country and within its borders.
Minister of Civil Aviation Jyotiraditya Scindia had said at the Times Now Summit 2021 that india’s aviation revolution looks akin to the telecom revolution of the 1990s.
“A similar change is happening in civil aviation where through very high penetration levels and high capacity expansion you are actually seeing a high volume, low margin game play out. So for me penetration is important. Which is why I have to look at greater accessibility through the UDAN programme which is the prime minister’s prerogative through Ude Desh Ka Aam Nagrik,” he told the TV channel.
That is why airlines, despite losses, keep flying. Though margins are low, volumes are high. Making a high absolute profit is not too hard if airlines manage their finances and performance well.
India’s aviation sector has been witnessing more than 4 lakh domestic passengers daily during the 2022-23 Christmas and New Year season. And with a surge in passenger volumes predicted, the tailwinds are strong for the airline business. In spite of the pandemic slump, when airlines were grounded and mobility restrictions limited operations, India’s aviation sector is witnessing a V-shaped recovery which is promising for those who are betting on the industry at this point in time.
