Domestic airlines industry Some key issues
Competition is the beauty and essence of a market economy. Competition engenders growth by increasing efficiency and effectiveness of the producer, enhancing quality of goods and services, and
reducing prices. Competition benefits the consumers. Competition is a market situation in which the consumer is the decider for product, price and
distribution. A producer, when able to manage competition, benefits of a larger market size and share. The Nepalese domestic airlines industry is functioning under liberal sky and economic policy environment since 1992. Civil aviation policy 2063 B.S. encourages competitive airlines industry in the country. As of today, there are 53 airlines permitted by Civil Aviation Authority of Nepal providing them with air operator certificates (AOC). Of these airlines, only a dozen fixed wing
and rotor wing airlines are operating. About two
dozen air operators (including paragliding and micro-light companies) have valid AOCs. The rest are not in business. The fittest ones have survived. This is the universal rule of business.
Marketing is about value innovation and managing future, while sales is about managing the present. Innovation is a new value-added benefit to the consumer. It can be a technical value or a service value. It can be a technology innovation, service innovation or process innovation with
the customer benefit at the centre. It increases consumer surplus or value for money. Nepalese private airlines industry is slightly over one and a half decades old. This time period is good enough for creating many customer-centric value innovations. However, the industry has not been able to bring about visible value innovations. Business models and processes have remained largely unchanged.
Domestic airlines reservation system is seeing a change in the radar. A couple of airlines, such as Buddha and Yeti Airlines, have leapfrogged from the traditional booking platform to the internet based booking system allowing agents to book air seats through the internet. E-ticketing has also been started recently. These processes reduce time and cost of booking and ticketing. They provide booking convenience. There are much more potential benefits airlines, agents and passengers can avail of using the internet. The internet is a revolutionary information and communication technology (ICT) extensively used by airlines around the globe. The internet seems to be initially used by budget airlines to facilitate direct booking by passengers. That time, the aim was at reducing the distribution cost, which was a large segment of direct operating cost. Innovation can be done in other areas, too. Airlines is a highly cost-centric business. Fuel, maintenance, aircraft and flight crew are the major cost heads, which nearly make 80% of the direct operating cost of domestic airlines in Nepal, according to Airline Operators Association of Nepal (AOAN). 10% reduction in these costs areas can enormously affect the bottom line of the airlines. Hence, innovation is dearly needed in these areas, which generally requires technology intervention, collaboration with stakeholders, employee motivation and management dedication.
Productivity is a systemic issue. It is about input to output ratio as well as balancing individual to overall performance of different areas in the organization. When there is an excess focus in one area in the organization, there is a likelihood of overlooking another area, thus risking sub optimization.
Airlines, in essence, is the part of the overall travel industry. For domestic airlines industry to prosper, the growth of the travel industry is a precondition. This requires phenomenal change in the involvement of domestic airlines in development and promotion of travel and tourism - including domestic tourism. There is a need for more airline investment of financial and non financial resources for this purpose. Better networking with Nepal Tourism Board in a broad based manner and with the travel trade in a micro level will be helpful for airlines.
Safety is a benefit wanted by all stakeholders in the airlines industry. Safety performance can greatly impact the bottom line of an airline. Cost and quality of service can be improved through enhanced safety management. Safety being a systemic issue requires full involvement of all internal and external stakeholders and management dedication. All airlines should have a safety target and safety campaign under a regular and well implemented safety enhancement plan.
In safety, while airlines are crucial performers, the role of civil aviation authority (CAAN) as the airport service provider (ASP) is critically important. CAAN as ASP should improve software, hardware and human aspect with a focus on safety enhancement. Airports particularly in remote areas, communication and navigation facilities and safety focused staff training have to be given a key priority. As the regulatory body, too, CAAN should enhance its function and role of safety oversight.
Shrestha is president of Airline Operators Association of Nepal (AOAN) and executive director of Yeti Airlines.