15-21 February 2013 #643

High costs, low fares

Nepal’s domestic airlines are headed into another patch of severe turbulence
Sunir Pandey in NEPALGANJ,

BIKRAM RAI
After a series of boom and bust cycles in the past decade, Nepal’s domestic aviation is flying into strong headwinds of low yield, stagnant growth, over-capacity, and safety concerns.

But that is not the conclusion one comes to seeing the hive of activity at Kathmandu airport’s domestic apron during the early morning rush hour these days. Dorniers and Twin Otters line up for takeoff to Lukla as the trekking season begins, Beechcrafts and Jetstreams are boarding for dozens of daily Mt Everest sightseeing flights, turboprops are boarding for Nepalganj, Biratnagar, Pokhara, Dhangadi, and Bhadrapur.

Beneath this facade of well-being, domestic aviation is in crisis. Two airlines, Guna and Agni, have gone belly-up since January, bringing to 11 the number of airlines that have folded since 2000. Guna has been bought by Simrik Air and Yeti hasn’t made up its mind whether to acquire Agni’s compatible fleet of Jetstreams and Dorniers. If Nepal Airlines takes delivery of two Chinese-made MA-60s as expected, private airlines fear it will worsen over-capacity on trunk routes and put further pressure on fares.

The remaining domestic airlines seem headed for a shakedown because consolidation is hampered by low profitability. A one-way ticket from Kathmandu to Biratnagar that used to cost Rs 5,000 five years ago is now Rs 3,000. Passengers benefit, but the airlines find it difficult to survive when aviation turbine fuel prices, which make up three-fourths of their operating costs, have gone up by 70 per cent in the same period, and the US dollar has appreciated 20 per cent.

Domestic trunk routes are heavily subsidised by higher fares that tourists pay on flights to Pokhara and Bhairawa, on the trekker ferry to Lukla or Jomsom, and for Mt Everest sightseeing flights. There has been robust growth in tourism arrivals, with the total in 2012 reaching nearly 600,000, a 10 per cent increase from the previous year.

“We focus on the revenue sectors that give better yield and try to tide over the over-capacity situation,” explains Umesh Rai of Yeti Airlines, “passengers may benefit from low fares, but if airlines collapse it will lead to a monopoly in the long-term.” Yeti has cut the number of daily Kathmandu-Bhadrapur flights from three to two and Kathmandu-Biratnagar from seven to four. Low fares also mean Nepali domestic airlines cannot afford to buy new aircrafts, and no carrier has planes less than 14-years-old.

There is cut-throat competition between the two biggest players, Buddha and Yeti, which have been waging a negative ad war over the age and reliability of their fleets. With its six ATRs, Buddha has lower operating costs per seat-mile than Yeti’s Jetstream 41s.

Rupesh Joshi of Buddha Air admits that there is over-capacity. “The airline business is all about day-to-day cash flow,” he says, “but with more fuel-efficient and high-volume ATRs, we can offer lower prices than anyone else.” Buddha’s safety record, however, was tarnished by the crash of a Beechcraft in September 2011 that killed 19 passengers and crew. It has also been investigated recently by CAAN (Civil Aviation Authority of Nepal) which has suspended three engineers after engine manufacturer Pratt & Whitney found maintenance lapses.

Buddha Air’s Managing Director, Birendra Basnet, admitted there was a “calculation error, but no malafide intent” regarding engine component replacement, and attributed it to a “malicious smear campaign” by rivals.

“The problem was caused by a computer software interface that had calculated the number of cycles incorrectly,” Basnet said, “Pratt & Whitney brought this to our attention and we immediately rectified it.”

For its part, Yeti has been trying to get its United Nations safety categorisation changed from ‘C’ to ‘B’, and says it is being unfairly penalised for flying to remote area airports, even though it has had no mishaps on trunk routes. Yeti recently passed an audit by the UN’s World Food Program for food charters in western Nepal as well as a global tender for logistics support.

Karnali’s food charters are a major source of income for Yeti subsidiary, Tara, as well as smaller airlines, Goma Air, Air Kasthamandap, and Makalu Air based here in Nepalganj. But the days of food ferry flights may be numbered as roads reach remote districts like Mugu and Humla. Yeti is also promoting Nepalganj as a hub for transit passengers flying from Kathmandu to destinations in far-western Nepal.

In 2011-12 the total number of domestic airline passengers reached nearly two million, almost 80 per cent of it to and from Kathmandu. Cargo volume broke all records, but 70 per cent of that was between Kathmandu and Lukla, proving how centralised and tourism-dependent domestic aviation is.

“Demand elsewhere is just not high enough, that is why airlines concentrate on Kathmandu,” explains CAAN Deputy Director Dinesh Prasad Shrestha. But as remote dirt airfields in Humla, Mugu, Dolpa, Khotang, and Manang are upgraded, Shrestha expects volume to grow. Kathmandu’s creaky old domestic terminal is also being expanded to handle more passengers.

Meanwhile, here at Nepalganj passengers for remote Karnali airfields queue for days to buy expensive tickets, and flights are often cancelled due to weather or aircraft shortage. Simikot and Talcha haven’t had flights for weeks because of heavy snowfall.

See also:

On a wing and a prayer

A safer sky

Trans Karnali blues

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