Private airlines struggling to survive due to poor policy support

It is often said that only 20% of Bangladesh's aviation sector is in the hands of local airlines, the rest is controlled by foreign airlines. 

Look at Singapore Airlines — a very big carrier. We consider Singapore as a hub where international carriers account for 70% and Singapore Airlines accounts for 30% of the sector. 

But it would be shortsighted to think all foreign carriers are dominating the aviation sector and we cannot utilise them. Airports are for international connectivity, not just with domestic airlines. As we go abroad, foreigners too come to Bangladesh. 

Even so, 80% foreign control may be a bit much. If we can add more capacity, it is possible to keep at least 40%-50% in the hands of local carriers.

Especially at mega hubs, foreign carriers have a higher market share. A country's airport infrastructure is open not only to the airlines of that country, but to all operators and airlines of the world. 

We may say the way Emirates Airlines is able to utilise Dubai Airport, local airlines in Bangladesh should also have the capacity to utilise airport infrastructure. But it will not happen immediately, the capacity will increase gradually.

An airport infrastructure is built with long-term projections. For example, Thailand's Suvarnabhumi Airport was designed with a 25-year projection. That means they will achieve capacity in 25 years. But within five years of starting, they have achieved capacity.

We don't know exactly if our third terminal is done at least with a 15-20 year projection in mind. But it will depend on many factors like the global situation, our growth, everything will be seen whether its proper utilisation has been done or not.

We definitely needed a third terminal. Not only the terminal, but also taxiways, runways, etc should have been there. Since it is a terminal, the best utilisation will be when other things are completed.

NovoAir's future plans

NovoAir also has its own plans to increase capacity, but the market for private carriers is limited. National carriers can think of connecting destinations in America, Europe, Canada, but for us it is a little difficult. 

Financial capability is a big factor. We can connect cities in South-East Asia, Middle East, Saudi Arabia, maybe Eastern Europe in some cases depending on our capacity. But that too is a matter of long-term planning.

In the short term, we want to be limited to Asia. Our destinations within South-East Asia are quite specific — Thailand, Malaysia, Singapore. We want to start flights to these countries by 2024. There are prospects in Indonesia. But the current passenger flow is not conducive to independent flights. So it is still not possible. 

That is why we have plans for larger aircraft in our fleet. Our fleet plan has been Airbus-centric from the start. Initially we want to add three more aircrafts.

Losing passengers

No matter how much we want to increase capacity, our challenges are increasing rather than decreasing. Some challenges have come naturally, while others have been thrust upon us for policy reasons.

A natural challenge is the decline in domestic passengers. The major reason for this is road connectivity. After the inauguration of Padma Bridge, our Barishal route has been completely closed and the Jashore route has lost 80% passengers. Roads are improving everywhere.

On the other hand, the overall economic condition and people's spending power has decreased due to inflation. People opt for air travel with disposable income. The middle class who could afford it, no longer can. Number of family trips has been reduced.

Most of the domestic routes except Cox's Bazar were family travel. Chattogram route was for business trips. Cox's Bazar will also be affected due to the direct rail line. But the closed airports in Ishwardi or Shamshernagar also have a lot of potential. 

On the one hand, we have the prospect of developing domestic routes by opening obsolete airports. But we are heading for a worse situation day by day due to political reasons. Regulatory challenges, while easing around the world, are getting tougher here. Our tax burden is increasing, while most of the countries are aviation tax free.

Financial challenges

Tax hikes mean cost hikes. Our oil price is 30-35% higher than the international market. As a result, our costs are increasing. That is why we are going backwards instead of forwards. Due to this, the expected growth is being hindered rather than facilitated.

On the one hand, interest rates are rising, on the other hand access to capital is closing. Banks say they are facing a liquidity crisis.

The International Air Transport Association (IATA) predicts that airlines will have a worldwide average profit of 2.6%. How can the cost of capital be in double digits, and the profit be 2.6%? In other countries of the world, the cost of capital has always been 1%-1.5%, which has increased recently.

There is a huge difference between the cost of capital in aviation and other sectors. While the cost of capital for businesses worldwide was 4%-4.5%, aviation was only 1.5%. 

But in Bangladesh, the aviation business pays the interest rate that an industrialist pays. So it is difficult to run the aviation business with this amount of interest.

Hard to compete with Biman

National carrier airlines always get some facilities which we do not get. These facilities should not be such that they become a threat to our existence. Because we have to compete at the same place at the same time. 

If my costs amount to Tk5,000, but I'm selling the ticket domestically for Tk3,000, it's impossible for me to sustain my operations.

Biman is flying because its money is coming from the government coffers. But a private carrier cannot do that. Biman is using wide body aircrafts where per seat costs Tk25,000. They are bringing passengers for Tk3,000. This is a huge cost that the state is bearing. Biman will not admit it, but that is the fact.

As we keep saying why private airlines don't survive, the first and biggest obstacle is the national carrier. Private carriers are suffering catastrophically in the name of facilitating flights. 

When we started the business in 2013, it was decided that Biman would not operate domestically. This decision was made in 2007 by the board of Biman because they have always been making losses on domestic routes. 

But from 2014, Biman started operating domestic flights. Again the concerning matter is that Biman started using big aircraft like Boeing-777 and 787. This is an existential crisis for us. Any new private carrier will not survive in such a situation, I can guarantee it.

An airline's growth needs to be accounted for both domestically and internationally. We had domestic priority, but had to go international to survive. But we had a plan to go international from the beginning.

Sketch: TBS

The author is the Secretary-General of Aviation Operators Association of Bangladesh (AOAB) and Managing Director of NovoAir.