Recession, less traffic flow hit private airlines
Sunday, 29 March 2009
Shahiduzzaman Khan
AGAINST the backdrop of the global economic downturn and the slump in traffic flow, local private airlines have landed in deep trouble. They have now urged the government for sanctioning Tk 10.0 billion interest- free loans and waiver of tax, landing and navigation charges in order to survive in the highly competitive industry.
An association constituting four private airlines -- GMG Airlines, United Airways, Best Air and Aviana Airways Ltd -- operating in the country, placed a written appeal to the finance ministry recently, seeking support from the government, already burdened with bailout demands from different business sectors. The Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), the apex lobby group, sought Tk 60.0 billion in bailout package to cushion businesses from the global crisis fallout.
The association of the private claimed that private airlines incurred a loss of Tk 3.0 billion last year because of the surge in fuel prices. As the recession deepens, oil price slumped. The situation should have improved with the drastic fall in oil prices. But passengers, including leisure travellers, have gone down due to global recession. Local airlines usually rely on migrant workers to the Middle East and Southeast Asian economies like Singapore and Malaysia that employ majority of Bangladesh's five million plus migrant workers. But as the recession deepens and oil prices slide, the outflow of migrant workers records a gradual decline, while many are on the return. The situation worsened further after the Malaysian government, one of the major employers of Bangladesh migrant workers, cancelled visas of 55,000 workers and the traffic situation deteriorated sharply after the cancellation.
Indeed, the global economic downturn hurts corporate and leisure travels by air from Bangladesh, forcing airlines to make promotional offers and ticket price cuts. The airlines face a drop in travel at a time when demand for migrant workers slows, as the financial meltdown dries up businesses in the Gulf and Southeast Asian region, the main markets for Bangladeshi workers. The migrant workers' voyage had kept the local industry vibrant.
Travel agents said many multinational companies and local businessmen have shelved their travel plans. Some are conducting their important meetings through video conferencing, instead of travelling. The crisis has cast a negative impact on almost all sectors. Holidaymakers have also decided not to travel, as many higher middle-income groups remain insecure.
The downfall in air travel comes after the global airline industry suffered a loss of up to $8.0 billion in 2008, hurt by the previous surge in oil prices. The International Air Transport Association (IATA) has recently predicted the industry would suffer a 3.0 percent drop in traffic in 2009, as recession dries up businesses and consumers' travel budgets.
The local aviation industry was growing by 7.5 to 8.0 per cent until last year. The market size of passengers was worth around Tk 35.0 billion. Globally, the aviation industry witnessed a 7.6 per cent growth globally last year and the growth is also the same in Bangladesh. Apart from United Airways, Best Air made its debut in January last year and Aviana Airways, with the brand name Royal Bengal, in late January last year, both on domestic routes so far. Earlier, GMG Airlines was the only private airline operating on domestic routes along with national flag carrier Biman Bangladesh Airlines Ltd. Anmole Albab Airlines Ltd, another local private airline, under the brand name of A2 Air is set to operate international passenger flights from Bangladesh soon. GMG has seven aircraft in its fleet with two Dash-8, three Boeing MD-80, one Boeing 737 and one Boeing 747. United Airways has one Dash-8-100, Best Air one Boeing 737, and Aviana Airways has one Dash-8-100. The private airlines were also planning to add more aircraft to their fleet so that flights could be expanded to international destinations.
The new private airlines have been operating domestic flights on Dhaka to Chittagong, Cox's Bazar, Sylhet and Jessore routes so far. Besides, GMG is operating international flights on Dhaka to Kolkata, Delhi, Kathmandu, Bangkok, Kuala Lumpur and Dubai routes. Most aviation experts welcomed the news that more airlines are being added to the country's aviation industry. They said this would create competition among the local private airlines and make them provide standard services.
The global economic recession and the slump in air traffic flow have caused most of the airlines operating from Bangladesh to cut air fare and launch some promotional activities in order to survive in the industry. Carriers like Singapore Airlines, Malaysia Airlines, and Thai Airways, have slashed ticket prices and undertaken promotional activities. Many other carriers, along with slashing the normal ticket price, have also made promotion offers for both business and economy class. Budget carriers -- Air Asia -- the continent's top budget carrier -- launched its Dhaka-KL flights, offering fares 40 per cent cheaper than the legacy operators.
Malaysian Airlines has also launched a fare-war on the Dhaka- KL route as it fights off competition from low-cost Air Asia to win back dwindling passengers. The KL-based Malaysian Airlines has cut back ticket prices by at least 30 per cent to lure corporate travellers amid a fall in overall traffic in the key air route and intense competition from Asia's biggest no-frills airline. Global downturn has forced business people to be cost-conscious. Now the people just travel if it can't be avoided. Aviation experts say the future of the discount airline would be contingent on how long it could sustain its operations, amid poor track record of such regional players in the recent past.
A Malaysian Air official admitted that its overall traffic has fallen by 20 per cent since the day Air Asia flew to Dhaka, impacting on its sales. Air Asia operates 300-plus seater A-320 Airbus flights daily between KL and Dhaka, its 62nd destination. Air Asia's entry to Bangladesh at a time of global aviation downturn is 'a threat in the sense that the market has not grown.' Biman Bangladesh Airlines and Malaysian Airlines, which control a combined share of 70 per cent of the market, are the two dominant players on the route. GMG, Best Air, Thai and Singapore Airlines share the rest.
According to a reliable source, Biman, the state-owned carrier, is also considering a fare cut in the route to hold on to its market share. Each week, an estimated 10,000 passengers fly between Dhaka and KL but that number dropped almost by a half in September last year as Malaysia froze new recruitment of foreign workers. Malaysia was the third largest employer of Bangladeshi workers last year, only after Saudi Arabia and the United Arab Emirates (UAE). According to a rough estimate, nearly 4.0 million passengers fly from Zia International Airport (ZIA) to different foreign destinations every year.
Very recently, Biman has placed orders for some new generation aircraft to a renowned US-based company. It is to be seen how best it operates after arrival of the new aircraft. All previous moves to bring about changes did not bear fruit because of widespread corruption and resistance from within Biman organisation. The most common complaint about Biman is that potential passengers are told that the flight is full, but after getting on board one finds many seats empty. After corporatisation, Biman needs to be vibrant enough to bolster its operational activities.
Running an airline profitably in today's fiercely competitive world requires concentrated focus and skills. Private airlines should confront such challenges for their own survival and the government may consider offering a stimulus package to bail them out from the curse of deepening recession. They should be properly restructured with the changing needs of the time. When most of the airlines are offering discount fares on international routes, local airlines need to follow suit both in domestic and international routes in order to capture a market share of the dwindling traffic. Otherwise, they are destined to suffer more loss that may lead to their premature deaths.
..................................................................
szkhan@the financialexpress-bd.com
AGAINST the backdrop of the global economic downturn and the slump in traffic flow, local private airlines have landed in deep trouble. They have now urged the government for sanctioning Tk 10.0 billion interest- free loans and waiver of tax, landing and navigation charges in order to survive in the highly competitive industry.
An association constituting four private airlines -- GMG Airlines, United Airways, Best Air and Aviana Airways Ltd -- operating in the country, placed a written appeal to the finance ministry recently, seeking support from the government, already burdened with bailout demands from different business sectors. The Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), the apex lobby group, sought Tk 60.0 billion in bailout package to cushion businesses from the global crisis fallout.
The association of the private claimed that private airlines incurred a loss of Tk 3.0 billion last year because of the surge in fuel prices. As the recession deepens, oil price slumped. The situation should have improved with the drastic fall in oil prices. But passengers, including leisure travellers, have gone down due to global recession. Local airlines usually rely on migrant workers to the Middle East and Southeast Asian economies like Singapore and Malaysia that employ majority of Bangladesh's five million plus migrant workers. But as the recession deepens and oil prices slide, the outflow of migrant workers records a gradual decline, while many are on the return. The situation worsened further after the Malaysian government, one of the major employers of Bangladesh migrant workers, cancelled visas of 55,000 workers and the traffic situation deteriorated sharply after the cancellation.
Indeed, the global economic downturn hurts corporate and leisure travels by air from Bangladesh, forcing airlines to make promotional offers and ticket price cuts. The airlines face a drop in travel at a time when demand for migrant workers slows, as the financial meltdown dries up businesses in the Gulf and Southeast Asian region, the main markets for Bangladeshi workers. The migrant workers' voyage had kept the local industry vibrant.
Travel agents said many multinational companies and local businessmen have shelved their travel plans. Some are conducting their important meetings through video conferencing, instead of travelling. The crisis has cast a negative impact on almost all sectors. Holidaymakers have also decided not to travel, as many higher middle-income groups remain insecure.
The downfall in air travel comes after the global airline industry suffered a loss of up to $8.0 billion in 2008, hurt by the previous surge in oil prices. The International Air Transport Association (IATA) has recently predicted the industry would suffer a 3.0 percent drop in traffic in 2009, as recession dries up businesses and consumers' travel budgets.
The local aviation industry was growing by 7.5 to 8.0 per cent until last year. The market size of passengers was worth around Tk 35.0 billion. Globally, the aviation industry witnessed a 7.6 per cent growth globally last year and the growth is also the same in Bangladesh. Apart from United Airways, Best Air made its debut in January last year and Aviana Airways, with the brand name Royal Bengal, in late January last year, both on domestic routes so far. Earlier, GMG Airlines was the only private airline operating on domestic routes along with national flag carrier Biman Bangladesh Airlines Ltd. Anmole Albab Airlines Ltd, another local private airline, under the brand name of A2 Air is set to operate international passenger flights from Bangladesh soon. GMG has seven aircraft in its fleet with two Dash-8, three Boeing MD-80, one Boeing 737 and one Boeing 747. United Airways has one Dash-8-100, Best Air one Boeing 737, and Aviana Airways has one Dash-8-100. The private airlines were also planning to add more aircraft to their fleet so that flights could be expanded to international destinations.
The new private airlines have been operating domestic flights on Dhaka to Chittagong, Cox's Bazar, Sylhet and Jessore routes so far. Besides, GMG is operating international flights on Dhaka to Kolkata, Delhi, Kathmandu, Bangkok, Kuala Lumpur and Dubai routes. Most aviation experts welcomed the news that more airlines are being added to the country's aviation industry. They said this would create competition among the local private airlines and make them provide standard services.
The global economic recession and the slump in air traffic flow have caused most of the airlines operating from Bangladesh to cut air fare and launch some promotional activities in order to survive in the industry. Carriers like Singapore Airlines, Malaysia Airlines, and Thai Airways, have slashed ticket prices and undertaken promotional activities. Many other carriers, along with slashing the normal ticket price, have also made promotion offers for both business and economy class. Budget carriers -- Air Asia -- the continent's top budget carrier -- launched its Dhaka-KL flights, offering fares 40 per cent cheaper than the legacy operators.
Malaysian Airlines has also launched a fare-war on the Dhaka- KL route as it fights off competition from low-cost Air Asia to win back dwindling passengers. The KL-based Malaysian Airlines has cut back ticket prices by at least 30 per cent to lure corporate travellers amid a fall in overall traffic in the key air route and intense competition from Asia's biggest no-frills airline. Global downturn has forced business people to be cost-conscious. Now the people just travel if it can't be avoided. Aviation experts say the future of the discount airline would be contingent on how long it could sustain its operations, amid poor track record of such regional players in the recent past.
A Malaysian Air official admitted that its overall traffic has fallen by 20 per cent since the day Air Asia flew to Dhaka, impacting on its sales. Air Asia operates 300-plus seater A-320 Airbus flights daily between KL and Dhaka, its 62nd destination. Air Asia's entry to Bangladesh at a time of global aviation downturn is 'a threat in the sense that the market has not grown.' Biman Bangladesh Airlines and Malaysian Airlines, which control a combined share of 70 per cent of the market, are the two dominant players on the route. GMG, Best Air, Thai and Singapore Airlines share the rest.
According to a reliable source, Biman, the state-owned carrier, is also considering a fare cut in the route to hold on to its market share. Each week, an estimated 10,000 passengers fly between Dhaka and KL but that number dropped almost by a half in September last year as Malaysia froze new recruitment of foreign workers. Malaysia was the third largest employer of Bangladeshi workers last year, only after Saudi Arabia and the United Arab Emirates (UAE). According to a rough estimate, nearly 4.0 million passengers fly from Zia International Airport (ZIA) to different foreign destinations every year.
Very recently, Biman has placed orders for some new generation aircraft to a renowned US-based company. It is to be seen how best it operates after arrival of the new aircraft. All previous moves to bring about changes did not bear fruit because of widespread corruption and resistance from within Biman organisation. The most common complaint about Biman is that potential passengers are told that the flight is full, but after getting on board one finds many seats empty. After corporatisation, Biman needs to be vibrant enough to bolster its operational activities.
Running an airline profitably in today's fiercely competitive world requires concentrated focus and skills. Private airlines should confront such challenges for their own survival and the government may consider offering a stimulus package to bail them out from the curse of deepening recession. They should be properly restructured with the changing needs of the time. When most of the airlines are offering discount fares on international routes, local airlines need to follow suit both in domestic and international routes in order to capture a market share of the dwindling traffic. Otherwise, they are destined to suffer more loss that may lead to their premature deaths.
..................................................................
szkhan@the financialexpress-bd.com