Aviation was one of the industries hit hard by the Covid pandemic. Other than that, there have been many other issues with the sector even pre-Covid. The Air India privatisation has finally been done. What is your view on the secor?
Ever since I have taken over, I have spent most of my time understanding the pain points of all the stakeholders within the industry — mainly airlines and airports. Like auto, there is an entire ecosystem here. Today, India is in the right position to ensure the flourishing of the aero ecosystem in India which comprises much more than airlines and airports. There is the area of MRO, cargo, flying training organisations, ground handlers, regional airlines, helicopters, aircraft manufacturing and my mandate as civil aviation minister is not only to look into the growth of airlines and airports, but also across the board the whole ecosystem.
How do you sustain demand, especially from passengers, when you always have the fear of a third wave looming somewhere in the background. Have you learnt lessons from the previous two waves in trying to minimise disruptions and if so, what are some of these?
These events are beyond disruptions. They are cataclysmic events which have the capacity to destroy industries. In legal parlance, they are called force majeure events. Such events probably happen once in a century and the whole sector gets shut down.
For me, the most important thing was to ensure that the resurgence is a continuum and for that, I have to look at both demand side and supply side factors with my background as an economist.
On the demand side, I have to make sure that I look at access, inclusivity, affordability and that can only be done on the one hand through higher penetration and this sector is very akin to the revolution that we saw in the telecom sector in the 90s. There was a time when we had none of these mobile phones in India nor analogue, nor digital and we initially had five main metros that went out on a bidding system and that was a very low volume, low margin, high cost game.
Today telecom has transformed itself into a high volume, low margin, low cost game. 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. His mission and vision was ki hawai chappal wala bhi hawai jahaj se safar kare (Even those who can’t afford more than flip flops, should be able to fly). That has been made possible through UDAN. There are some amazing stories within that envelope.
The fact is we have airstrips now in small tier II cities like Darbhanga, Jharsuguda in Odisha — which post World War II had been wiped off the aviation map and today have a very healthy demand of over two lakh travellers per month — great connectivity all because of UDAN via VGF or viability gap funding.
Then we also have to look at the last mile solution which is not only the Boeings and airbuses but regional aircraft, helicopters etc. For example, we have a very low per capita penetration rate of helicopters in India. We only have a fleet of 280 helicopters in India. Now that is a huge impetus for the hilly regions, northeast regions and therefore I have come out with a new helicopter policy which has really democratised helicopter travel for masses, wiping off parking charges, landing charges. We have a heli seva portal, we have made sure that we have a helicopter accelerator cell within the ministry for promoting this last mile connectivity. So one is to look at demand side factors.
The second is to really look at supply side factors where one looks at increasing the scope of airports. I was not aware of this until I took over as civil aviation minister. In 70 years in India, we have built 74 airports from 1947 till 2014. From 2014 till date under the prime ministership of Modiji, we have built 62 airports. So 74 airports in 70 years and 62 airports in seven years. We have gone from 74 airports to 136 and the journey does not stop here. By 2024-25 we will have a total of 220 heliports and airports together. That is where we are going to get the greatest demand, greatest connectivity .
Civil aviation traditionally has always been known to be an elitist form of travel. In the last seven years, democratisation of travel through air has happened. Today the fare rail travel beyond 6 to 8 hours on a second AC coach is 10% to 20% higher than the cost of flying by air.
We have 181 million passengers travelling by rail and 141 million people travelling by air. Now here comes the trigger. The CAGR, the compounded annual growth rate for rail travel, is only 5.3%, the CAGR for air is 10.4%. So within the next three years you are going to have many more people travelling by air than by second class AC and above on rail. That is the revolution that is going to happen in India.
You did say that the prime minister wanted people in Hawai chappal to fly in an hawai jahaj. Are they really reducing the airfares because in August, the civil aviation ministry increased the cap on minimum and maximum airfare by 12.5%. During Diwali, the prices have gone up again and there was quite a disparity between now and what was there before?
It is important not to be selective but to look at the landscape. Can you think of another industry where a single raw material comprises close to 40% of your cost structure and in this case, 40% of your revenue structure because all airlines are making losses. So your cost structure is your revenue structure. ATF, air turbine fuel is 37.9% of an airline’s cost structure and similarly of its revenue structure. Now look at what has happened to ATF prices. Over the last eight months, oil prices have gone from $22 a barrel to $84-85 a barrel. So the airline cost structure has gone up by 4X. Add to that 11% excise duty and VAT charged by states ranging from 1-2% to 30%. How is an airline going to survive unless it becomes economical?
That being the case, the reason why I raised the airfare bands is because we have to give some level of cushion when there is a 400% increase on the raw material side. If one is not able to give a 12.5% increase on the revenue side, then you and I would not have an airline to board tomorrow. So I think it is important not to look at a data point at a particular period of time but look at it in context of the raw material pricing and in the context of a continuum. Today my bet is that airline prices are one of the lowest in the world if you take out the Covid period. But in the pre-Covid period, in terms of a mode of travel, compared to any of our neighbourhood areas.
Now what is the ministry of civil aviation doing to assist in this scenario? I am responsible at the end of the day as minister of civil aviation to 130 crore people. I am not the minister of airlines, nor am I the minister of airports or MROs. I am responsible to my end customer and have to be able to give them a choice in terms of pricing as well as in terms of value and service delivery mechanism.
So my effort is to work with states to be able to reduce VAT. In the last four months, I have written to 25 chief ministers making them understand how VAT is holding states back in terms of connectivity. And I must place on record here that many forward thinking states and leaders or chief ministers have taken a tremendous step in understanding where we are coming from and lowered VAT.
Over the last 40 days, we have been successful with Jammu & Kashmir, UT of Andaman & Nicobar, Ladakh, Uttarakhand, Himachal, Haryana. All six states have lowered their VAT on ATF from between 25 and 28% to 1-2%. I salute the leadership of those states that have done that and as a result of that, the kicker in the last one and a half months has been much greater connectivity to the states. Civil aviation is not a service alone, it is not connecting hearts alone, it is not connecting people alone, it is not providing connectivity alone. It brings with it two very important multipliers; the first an economic multiplier. Every dollar invested in civil aviation results in $3.25 in terms of GDP, one. Two, it is also an employment multiplier as every single direct job created in civil aviation creates 6.1 indirect jobs. Civil aviation in many ways is the hallmark and the lynchpin of bringing about economic development in nations across the world and so will be the case with India.
Which are the states that are still sort of standing on formality and not boarding the VAT path. Also Air India, the Maharaja, will finally be going back to Tatas. At what stage is this transfer process right now?
In the last 40 days, through our efforts and their cooperation, six states have already come on board. Of the total of 36 states that we are looking at, 10-11 have been very forward looking and historically have had very low VAT rates between 1 and 4%. So those 11 were already on this side of this equation. Now six have already come on this side so we have now 17 on this side and we have another 18 or 19 to work with. Of the 18 or 19, I have already got affirmations and confirmations from three more, but I am not going to name them until I get them in my basket.
Are these Opposition or BJP ruled states?
I do not think it is an opposition or BJP ruled state issue. It is about economic growth, connectivity and employment for every state and I do not think everything must be seen through a partisan lens. For every state, it is their economic development and I must say on this issue I have had great cooperation from both government ruled or opposition ruled states and vice versa.
To answer your second question on Air India, this has been a landmark transaction. More than a transaction, it has been an event that has been in development for over 15 or 18 years. It is an event that will herald landmark changes in the aviation sector. It is a win-win for every stakeholder — be it the country, the government, the private sector or the end consumers.
Even the employees?
And even the employees at the end of the day.
What are the timelines?
At this point of time, the shareholders agreement has been signed, conditions precedent is the next stage. We are closing on those conditions precedent and we have put a date of somewhere in mid or third week of January as the outlier for complete transfer of operations to the new party. I wish them well. I believe that they will certainly bring about a value proposition for our end customer. I also believe that competition in the airlines, civil aviation space is extremely important. It is important for me to ensure that we have a minimum of four to five players in this market so that customers have a choice and on that note, this is the first time in probably the last two decades, where as opposed to airlines being weeded out and closing down, we are going to see next year the birth of two new airlines. We are going to have a reborn avatar of
and Akasa is going to come into the fold along with Air India under new management. I look forward to a greater value proposition and greater service delivery to my customers.
The press release that was issued during the conclusion of the deal says the interest of employees will be taken care of. How exactly? Also on the question of the price of Rs 18,000 crore, since it has so many assets, do you think it is the right price?
We have a habit always in our country of “whataboutery”. What if? I think we need to transition from whataboutery and what if to what is. This is an event that has happened and it is a landmark historic event is something that all of us as a country irrespective of the politics that we believe in and the thought processes that we believe in, were waiting to happen.