Policy Research Institute - PRI Bangladesh

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An insight into the aviation industry

Published: Wednesday, Sep 28, 2016


Posted : 28 Sep, 2016 00:00:00



An insight into the aviation industry

Azmina Azad

Over the last decade, the South East Asian nations have been experiencing a boom in the aviation industry. Bangladesh is no exception. With a population base of 160 million people, quite apart from commercial and tourism travels, each year an estimated four hundred thousand people leave the country for employment and more than hundred thousand visit Saudi Arabia for Hajj. This has made Bangladesh a profitable destination for many foreign airlines, while creating the scope for emergence of private domestic airlines.

Despite having huge prospects in the airline industry, Bangladesh is lagging behind the fellow Asian nations. Every year Singapore Airlines carries more passengers than its total population. Thai Airways and a good number of Indian airlines are also dominating the booming air travel business. Needless to say that the airline industry is capital-intensive.

In addition to the cost of airplanes (from US$80.6-US$400 million if bought and US$0.015-US$1.375 million if leased), each airline company would have to undertake major spending on employment, training, expensive equipment and facilities. This would require a huge start-up capital.

Private airlines that emerged in Bangladesh were poorly capitalized to begin with. Jet fuel is the major cost in operating an airline. Some got into the practice of not paying for the jet fuel bought on credit thus building up huge debts. When fuel prices rose to over $100/bbl., GMG Airlines, the first successful private airlines in Bangladesh, started to collapse and others followed suit.

PASSENGER FLIGHTS: There are currently five major companies operating in the Bangladesh aviation industry: Biman Bangladesh Airlines, United Airways, Regent Airways, Novo Air and US Bangla Airlines. The national flag carrier, Biman, has not been a good example to follow in the past. At the time when Asian Airlines industry was experiencing tremendous growth, Biman was undergoing criticisms regarding its management system and the quality of its service. Reform measures have been taken over the years to improve the service, capacity and quality of the national flag carrier. However, as of February 2016 only 14 fleets of Biman have been in operation of which 12 fleets went to international destinations.

It is important to understand that majority of the people travelling to the Middle Eastern countries are emigrants leaving for work. Given that customers directly respond to price, the cheaper fare offered by local companies on international flights should be a clear selling point. However, as the seats are usually full and the remaining travellers are compelled to use other airlines, Biman is not being able to take full advantage of the increased demand for air travel. The obvious benefits of using other airlines cannot be ignored but a more efficient planning of the routes and increased number of flights can act in the advantage of Biman in this matter.

AIRPORT: The number of airports is also a concern. Dhaka lies on the air route that connects the far-east to the west. With quality and capacity enhancements, Dhaka airport could potentially be an East-West connector hub of the future. Bangladesh currently has five operational domestic airports and only three international airports. The growing demand for both domestic and international flights cannot be catered for if the number remains the same.  

An insight into the aviation industry

In addition to the need for more airports, the existing airports need close inspection as well. New airplanes that have come into service such as the Airbus 380-800 cannot land in Dhaka because the airport cannot provide adequate parking space. Providing fuel and maintenance services for international flights is a big business in itself. There is a lot of localized revenue to be made from having the resources and services put together to support international flight operations. It goes without saying that the dock space that will be provided by Bangladesh airports for large international aircrafts like the Airbus 380would result in significant revenue increase. Based on the weight of the aircraft, the landing charge will also add substantially to the revenue (Table).

CARGO FLIGHTS: Questionable security measures related to cargo flights from Bangladesh is another key issue hindering the growth of this sector.

Germany is now the third country, after Australia and the U.K., to restrict direct cargo flights from Bangladesh due to security concerns. All air cargo from Bangladesh bound for Germany will have to be re-screened at a third country before entering Germany. The rescreening procedures are likely to drive up costs and make Bangladesh a less competitive location overall. Germany represents the second-largest ready-made garments (RMG) destination after USA for Bangladesh, valued at approximately US$4.98 billion in FY 16.

The restrictions will have a serious blow on the image of Bangladesh. Although the government has taken sincere initiatives for ensuring airport security but the restrictions are still in effect. Carriers bringing cargo to the UK using direct flights from Dhaka airport have also been instructed to cease doing so until further notice. Any cargo flight from or passing through Dhaka needs to be rescreened before the final leg into the UK. Although Australia has allowed cargo by ship but consignments by air face serious restrictions. Issues as such are hindering growths in the aviation sector of Bangladesh. Civil Aviation Authority, Bangladesh (CAAB) should put more emphasis on meeting the international standard when it comes to cargo screening.

GROUND HANDLING: Ground handling at Bangladeshi airports is another area that requires major improvement. Currently, Dhaka airport does not have automated luggage handling facilities. The luggage are often man-handled and an arriving passenger would normally have to wait anything over an hour to collect his/her own luggage from the conveyor belt as opposed to Kolkata which takes only 15 minutes to process ones' luggage. While most international airports appoint more than one agent for ground handling to ensure quality service, the national flag-carrier, Biman, remained the sole agent for ground-handling services in all airports of Bangladesh since Independence.

Needless to say, this has affected the growth of tourism and the airport's global reputation. Various airlines are keen to connect with Dhaka which can increase the prospects of foreign investment. However slow ground handling, lack of trained manpower and modern equipment have been acting as barriers for a long time now.  Including a foreign partner for ground handling would be a positive move as it will increase competition, decrease ground handling time and ensure better customer service.

GOVERNMENT SUPPORT: Government support and incentives are essential for sustainability in the aviation industry. The pressing need for modernisation and effective planning must be addressed immediately. The government has recently decided to appoint more agents for ground handling services at the international airports. It is definitely a positive move for the industry.

In addition to that, plans to set up new International Airports, with two runways, should be undertaken.  Dubai airport currently has two runways and is one of the busiest airports in the world. Government should also provide adequate space for warehousing. Cargo clearance should be made efficient by improving infrastructure, automation and customs procedures at the airports. Additional investment should be made on increasing ground capacity of international airports and employees need to be trained to achieve the required standards of operational and customer service.

If the needed services are ensured to meet the growing demand of air travel and cost-effective solutions are provided at all levels, a tremendous growth can be witnessed in the aviation sector of Bangladesh which will benefit not only this industry but also the economy as a whole.

 [The writer is a Senior Research Associate at Policy Research Institute of Bangladesh (PRI).  azmina.azad@gmail.com]