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Huge untapped potential in Indian aviation: PWC

However, Mathew believes the government should ease many regulations in order to allow better functioning of the airline companies.

June 30, 2015 / 06:08 PM IST

The country's biggest airline by market share 'IndiGo' has filed for an Initial Public Offer (IPO) and is looking to raise Rs 2,000 -2,500 crore through the same. In an interview to CNBC-TV18, PWC's Rajiv Mathew says there is a lot of scope in the Indian market for more airlines to enter.

However, Mathew believes the government should ease many regulations in order to allow better functioning of the airline companies.

Below is the verbatim transcript of Dhiraj Mathur’s interveiw with Anuj Singhal and Reema Tendulkar on CNBC-TV18.

Anuj: We have seen quite a bit of interest coming back in the aviation space, a large part of this was what happened to crude prices but do you think this kind of interest is sustainable?

A: Certainly it is sustainable. Looking at the long run this is a very promising sector in India. It is a highly underserved market, I would say it is less than 3 percent of our population flies. We have something like one plane per 2 million population whereas the US has something like one plane per 50,000. If you try and travel across country, if you try and travel between Delhi and Mumbai or some of the other cities, it is very difficult, it is almost impossible to get a train ticket unless you book months in advance. So, there is certainly a huge market, huge untapped market, there is a huge unmet demand.

It is no longer a luxury, it is a necessity, it is necessary for business, it is necessary for tourism, for leisure. So, the market is certainly there. There are some fundamentals that have been impeding the growth and profitability of airlines. These are well known – ATF prices and the taxes. Some of those issues have been addressed partially. Global crude prices have fallen so that has been good news for the industry and the basic point is that Indigo about whom we are talking today, they have made profit from year one. They have had three or four digits profit on every year of their operations. So, clearly there is money to be made and therefore the interest that we are seeing is certainly in my view sustainable.


Reema: On Indigo in particular there is still a lot of question mark on how they generate these profits so while we are awaiting the draft red herring prospectus (DRHP) to be signed what according to you will be the interest by institutional investors in an issue like Indigo?

A: That is a USD 200 million question but I would expect there to be good interest. They have like I said, they have made profit from the first year of their operation. Their promoters understand the business very well. They have got their model working. They created the low cost model in the country and they have been running it very well and efficiently. So, it is not as if the market has favoured them, they have been able to understand what it takes to make money.

If you see, it is not that they alone have made money. In the last few years other airlines have also made money. Jet Airways has made money several times, SpiceJet has made small profit in the last quarter or so as has been reported. Air India has improved significantly in terms of its operating profit, its losses have come down and it even made a small operating profit I understand. So it is not that the market is favourable only for Indigo. As I said, it is a huge market, there is a huge untapped demand and it is about getting your efficiencies in place, in planning your operations, in rationalising cost and so on.

Anuj: Do you think the industry as a whole has matured now in terms of their not being too aggressive pricing, too many discounts like was the case when these companies were making big losses, now we hardly see any kind of big discount fair going on in airline tickets?

A: I wouldn’t like to speak too soon because these discount schemes are driven by a number of factors and those factors can easily come back as well. I wouldn’t say that the industry is matured, I would still say that the industry is in a nascent phase, things need to settle down, the regulatory regime needs to settle down, we need to have a stable stability in the regime, we don’t need ad hoc declarations about capping fares and so on.

So, those things, the 5/20 rule and its replacement, so the regulatory regime is something that still needs to stabilise. It is only when the regulatory regime is stable that the industry can begin to mature. However, I would definitely not say that the industry is mature, I would say it is still at a nascent stage. Some airlines are more advanced than others in terms of stability and maturity but the industry as a whole is still nascent and it does need stability in the regulatory regime.

first published: Jun 30, 2015 03:44 pm

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