Wednesday, March 19, 2014

India Must Boost Domestic Air Service, Says KPMG Report


A KPMG report suggest India needs more service to secondary markets, such as that SpiceJet now provides with its Bombardier Q400s. (Photo: Bombardier)
March 18, 2014, 10:33 AM
India’s next government needs to press ahead with the development of domestic air routes, according a new report published by consultants KPMG last week. India’s Five-Year Plan for the period from 2012 to 2017 included a policy to improve flight connections between second- and third-tier cities, but progress all but stalled due to the political inertia that has gripped government ahead of elections to be held in April and May. At the same time, the recent downgrading of the country’s aviation authorities to Category 2 by the U.S. FAA has compromised India’s ability to develop further international air service.
According to the KPMG report, “Enhancing Air Connectivity,” high fixed costs and lower traffic continue to undermine the financial viability of airports in many provincial Indian cities. The need for low-cost airports to support regional connectivity remains a challenge, it said.
KPMG has called for the implementation of the civil aviation ministry’s long-delayed proposed Essential Air Services Fund, which incorporates a subsidy for development of low-cost airports and airlines to encourage domestic airlines to fly to remote destinations.
Regional service in India has stagnated despite a doubling of overall passenger traffic over the last five years. During that time, service to major metropolitan areas has proliferated as several tier-two and -three cities remain with little or no airline service.  India’s airports and airstrips number around 450. 
“With the existing economic centers reaching a saturation point, business activities are bound to move to newer destinations and air connectivity to these new economic centers will not only provide a fillip to the local economy but also bring in incremental traffic to existing airports,” noted the report. The launch of regional airlines such as Embraer E170 operator Air Costa represents a step in that direction.
“We have just touched the tip of the aviation iceberg….our challenges are primarily related to policies, procedures, regulations, and taxes. These are all man-made and surmountable,” said Amber Dubey, KPMG partner and the group’s head of aerospace and defense for India.