Print Edition - 2016-12-29  |  Yearender 2016

Flying High

  • After a resurgent 2016, Nepal’s aviation industry has been buoyed by the opportunities that lie ahead
The government has invested billions of rupees on the construction of two new international airports in Pokhara and Bhairahawa. It has planned to invest more than $1 billion for the development of the second international airport in Nijgadh, which will be the largest airport in terms of size in South Asia

Dec 29, 2016-Come 2017, Nepal’s aviation industry, which has remained quiet for a long time, will be on the march. At least two dozen new aircrafts are expected to be added to fleets in the next year boosted by the ongoing construction of new international airports and rising passenger flow. 

Air travel in Nepal was long perceived as a rich person’s mode of transport, which held back its development to some extent in the previous years. But this is changing as the size of country’s middle-income group is increasing. A study by the International Air Transport Association shows growth in disposable income is the key demand driver of airline travel. Improved economic conditions lead to higher disposable income, which then lead to improved travel demand.

According to experts, growth in the number of air travellers in Nepal has been driven by two key factors—poor condition of national highways and rising incomes. 

Road travel on Nepal’s mountainous terrain can be precarious. So, people who can afford it prefer to fly rather than travel on winding roads full of potholes or bumps. And lately more and more people have started flying, creating business opportunities for airline companies.

“It’s an encouraging sign. Nepali airlines are expanding their fleets, while few new players are making entry into the industry,” said Tri Ratna Manandhar, former director general of the Civil Aviation Authority of Nepal (Caan). “This will ultimately benefit consumers, as the market will be competitive—both in terms of airfare and services.”

And the growth is evident. 

The crumbling Tribhuvan International Airport (TIA), the only international aerial gateway to Nepal for the last five decades, will soon have a successor. 

The government has invested billions of rupees on the construction of two new international airports in Pokhara and Bhairahawa. It has planned to invest more than $1 billion for the development of the second international airport in Nijgadh, which will be the largest airport in terms of size in South Asia.  

International airport in Bhairahawa, a gateway to the birthplace of Gautam Buddha, is expected to come into operation by mid-2018. Another international airport in the tourist hotspot, Pokhara, will come into operation by mid-2020.

Presently, poor airport infrastructure remains a constraint for smooth operation of airlines and growth in the tourism industry. Despite major hurdles, in the form of high jet fuel prices and choked airports, as well as fierce fare wars that have put many carriers in the red, the airlines industry has performed well, but still has a long way to go.

2017 will see Shree Airlines, a helicopter company, diversifying into the fixed-wing operation with a 50-seater Bombardier Canadair Regional Jet (CRJ-200). Yeti Airlines has revealed its plans to replace its fleet with bigger aircrafts. Saurya Airlines has plans to add another CRJ to its fleet, while Buddha Air will be adding two ATR 72s by 2017.

Likewise, Goma Air plans to add two aircrafts. Nepal Airlines will also be inducting four new aircraft to its domestic fleet and one wide-body Airbus A330 aircraft in its international fleet. New entrant Himalaya Airlines plans to induct two A320 jetliners to its fleet next year.

Looking back, domestic passenger movement has been on a constant decline since 2012, marking a departure from the robust growth seen since 2008, when airlines were flying high due to competitive airfares and constant protests and road blockades that forced travellers to take to the air. The key factor for the drop in air passengers was frequent crashes in the Nepali skies.

There have been 24 air crashes in Nepal in the past decade—averaging two accidents per year, according to Caan’s Aviation Safety Report 2016. A total of 167 people lost their lives in these accidents from 2006-15. According to the report, 134 people were killed in 11 crashes involving turbo-prop aircraft, and 33 people were killed in 13 helicopter accidents.

As expected, the alarming frequency of air accidents eventually hit passenger movement. Airlines had seen a heady passenger growth of 13 percent in 2008, which jumped to 33 percent in 2009, as they cut fares amid stiff competition. Although passenger movement increased by 12.83 percent in 2010, the growth rate dropped in 2011 and has recorded negative growth ever since.

But 2016 proved to be a productive year for air travel. Domestic carriers posted double-digit growth in passenger carriage in the first half of 2016, emerging from the four-year dive as travellers chose to fly rather than travel on national highways. According to TIA, domestic airline passenger traffic jumped 10.82 percent to 741,128 during the January-June period.

The statistics also show that domestic carriers received 72,388 additional fliers in the first six months of 2016 compared to the same period last year.

The growth of Nepal’s air transport industry can be traced back to 1992 when the aviation policy was liberalised. Aircraft movement jumped four-fold from 24,600 in 1992 to 95,000 in 2012. Liberalisation in Nepal’s aviation scene opened the door for private operators, and a swarm of airlines, including Nepal Airways, Necon Air, Everest Air, Cosmic Air, Lumbini Air, Asian Airlines, Shangri La Air, Manang Air and Impro Airways, took to the skies in the initial years. However, many didn’t survive for long because they could not generate adequate profit to remain afloat or provide quality services.

Historically, airline companies have always expanded their fleet in times of profit booms. But the addition of air seats generally results in fare cuts and lower capacity utilisation, which put pressure on yields and lead airlines to incur losses.

“Obviously, the domestic aviation market suffers from unbalanced growth,” says Birendra Bahadur Basnet, managing director of Buddha Air. “For example, who would have imagined that Cosmic Air, run by a Nepali billionaire, would go bankrupt in a short span of time.” In October 2004, Cosmic acquired its first 105-seat Fokker 100 aircraft. It leased two other airplanes of this type in January and April 2005. At its height in 2005, the company even launched international services, but it latter suffered financial problems.

“History shows us how airlines come in with a bang and but have  gone bankrupt soon after. It’s also an example that running an airline company is a dicey business,” adds Basnet. “It’s not easy and it’s uncertain as well,” says Basnet. “If you cannot handle it properly, you are bound to fail.” 

Contrary to trends, however, Buddha Air’s continued success in the Nepali skies has been phenomenal. The company, which commenced operations in October 1997 with sightseeing flights to Mount Everest using a brand new Beechcraft 1900D, has now become the largest single domestic air operator, with three ATR 42s, three ATR 72s and two Beechcrafts. It plans to add two more ATR 72s by 2017, of which the first aircraft is expected to join its fleet by mid-January.

And the story does not end here. Buddha is now also eying narrow-body jets. “We are doing homework on connecting Pokhara to the international market using Airbus or Boeing jets once the airport project is completed,” says Basnet. “We need at least 1,000 tourists a day to make our business viable.” 

Industry players believe that the market is growing with hopes of aviation sector reform running high. After years of wrangling, the government is set to draft a new Integrated Civil Aviation Act that has been envisaged to allow the private sector to build and operate airports.

A draft of the new law looks kindly on potential privately operated airports, and it has also simplified the process for the government to privatise existing airports. The key element of the new bill is splitting Caan into two entities—regulator and service provider—to facilitate stringent enforcement of safety measures. 

Enhanced safety measures are expected to raise the confidence of the consumers towards air travel and further increase the number of air passengers. This will ultimately help Nepal’s aviation sector to grow in a healthy manner.

All in all, after a resurgent 2016, these are heady days for Nepal’s airline industry. Going forward, despite the projected growth, a key question remains: Will this growth reduce airfares, as flying is still expensive for large majority of Nepalis.

Published: 29-12-2016 10:21

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