May 2005
COVER STORY

Flight Plan in Turbulance An insight into aviation industry

By Madan Lamsal & Keshav Gautam

Internationally, the health of aviation industry is the precursor of the health of the economy of any region or country. The volatile global economics and other socio-politico-economic frame conditions have led to massive restructuring mode in the global aviation industry. Rising fuel prices, global terrorism, burgeoning economic growth , political upheavals, tourism and wars have all resulted in Aviation Industry restructuring its operation.

In Nepal, internal conflict has played a massive role in ongoing restructuring of the sector and the industry is now poised for growth but with failing infrastructural support.

How Cosmic is Making/Losing Money Cost Cost heads Per Hour(in US $) Annual(in Rs.) Landing/Parking/ Navigation fees 242 8.66 crore Insurance premium 363 13.00 crore Bank interest @ 7.5% on project loan of Rs. 25 crore 52 1.87 crore Business promotions 21 0.75 crore Company overhead (salary, rent, communication, transport, stationery etc.) 226 8.10 crore Aircraft lease 1,200 42.94 crore Fuel (2956 litres/hr) 1,980 70.85 crore Engineering/maintenance 635 22.72 crore Total 4,917 168.89 crore say 169 crore Profit/Loss Annual Cost US $ 2.38 crore / Rs.169.00 crore Annual Revenue US $ 1.50 crore / Rs. 107.00 crore Annual Loss US $ 0.88 crore / Rs. 62.00 crore Revenue Average fare per hour (one way) (in US$) Average occupancy (%) Daily flights One way flight time Annual revenue (in US $ in rores) Annual revenue (in Rs. in crore) Biratnagar 24.55 75 4 30 min 0.558 39.40 Nepalganj 32.42 75 1 45 min 0.184 13.06 Bhairahawa 21.30 75 2 25 min 0.242 17.18 Delhi 45.84 75 2 1hr 45 min 0.521 36.99 Total 1.505 106.63 say 107 Other bases of calculation Flight hours per day 14 Days of operation in a year 360 Currency conversion rate US$ = Rs. 71 Insurance value US$ 500 million including for 3rd party liability per aircraft (as per the International requirement, though Indian government’s requirement is for US$ 750 million) The total of US $ and Rs figures may not tally because of rounding off of the figutres. Source: Collected by Nubiz from various sources

Professional Opinions What stage the proposal to cross-subsidise air services to remote areas? Rajesh Raj Dali Director General, CAAN Airlines are not ready to go to remote areas because of the lack of financial viability in serving to these places. Hence the cross-subsiding scheme. The idea is to help them meet the operating cost, though not guaranteeing a profit. A committee is formed and the details are still to be worked out. Discussions are still going on with Airlines Operators Association of Nepal. What are the major issues facing civil aviation industry of Nepal? Safety and security as well as awareness among the people involved in this sector. CAAN has adopted the ICAO system for airline safety and enforces the ICAO system in airlines operating in Nepal. Though the airlines have developed their safety manuals, in practice they are not working as per the manual. Then there is the problem of the human resource and lack of aircraft maintenance workshop. What steps are being taken by CAAN to address these problems? To address the safety and security, CAAN is conducting regular checks and it has all the rights to enforce safety requirements. Whenever an airline is found lax in this area, it is immediately grounded and made to rectify the errors before allowing to resume operation. The maintenance facility is a part of the program to upgrade the airport. CAAN has received requests from airlines for hangar space. But the land available in Kathmandu airport is limited. We are thinking of providing space for hangar in Kathmandu with the condition that it may be taken back when CAAN needs it for more urgent purposes. But that is not going to be a long-term solution. The private sector has not voiced its demand for a training school so far with CAAN, and CAAN itself is surely not going into it on its own. There can be a public-private partnership. It is said there are now too many airlines overcrowding the airspace. But CAAN is allowing more airlines to come in. What is the justification? We don't issue license; it is done by HMG. We issue AOC to the licensed airline companies on the basis of technical and financial aspects and market sectors targeted. But I don't think the number of airlines is too high. Some airlines have closed down due to competition or other reasons. So more airlines are likely to close down also in the future. In this scenario, if new airlines are stopped from coming, there will be a shortage in the future. One challenge now is the financial health of the airlines because the airfare is going down and down. Joy Dewan, CEO Zenith Travels (GSA, Qatar Airways and Air Sahara) What are the problems facing the aviation industry? One is the credit system. Late payment is common nowadays. Almost 40% of the portfolio comprises of overdues to be collected from agents. We have to get overdraft from the banks to pay the airline. Next is in the human resource. Skilled manpower is difficult to find. This is the main problem to expand this business. Appropriate trainings are not available locally. Why not set up such centers by private sector itself? That is not our field. This concept is however, gradually developing. Probably other players will take up this as it is a promising business opportunity. How are the foreign airlines helping in employment generation for the Nepalis? Qatar has 40-50 Nepali airhostesses, plus some people in other departments, for example in accounts, freight handling etc. Dragon Air had about six Nepali flight attendants, but now as they have stopped flights to Nepal, they felt there was no need to have local staff. The other way the foreign airlines create employment is by increasing demand for the GSA to have staff dedicated to handle the business of the airline concerned. But the contribution of the foreign airlines is not only in terms of employment generation. They pay taxes to the treasury and fees to the CAAN. Most importantly, they promote the country as a tourist destination and bring in tourists thus helping the tourism industry and thereby the entire economy. Any possibility of Dragon resuming flights in the near future? Dragon had restarted but stopped again after the 9/11. Now it is reviewing the business and the route study is going on. How do you view the ongoing competition among the airlines? Sustainability of the ongoing fare war is a big question, though the consumer is getting benefit and the size of the traffic is likely to grow. Nowadays, the airlines are not doing well worldwide, hence mergers and alliances are going on. The time now is for cooperation rather than cut-throat competition. I think the Nepali airlines have to look for the possibilities of such cooperation. Birendra Basnet MD, Buddha Air (P) Ltd. How do you comment on the ongoing fare war among the airlines? This will not go for long. It increases the volume but the cost of operations will not be recovered . Some airlines may have to close down within six months. We think the competition should be on other parameters like service. As two of planes are now 100% owned by us, we have not big problem to sustain the present competition. If the fares go down further down and the revenue is not enough to meet even the direct operating costs we can put these craft idle and save the loss. But companies that have all the craft on lease will suffer a lot. How is your plan for business expansion? We had applied for permission to operate international flights by registering Nepal International Airlines in partnership with other friends, but we were not given the license. However, in the present scenario, there will be no profit from regional operations. So even if we get the license now, we are not in a position to use it. The major operation of the international airline will be to India. But Delhi sector already has too many operators, and they are not getting enough business. Hence, the fare war is already very intense. Sahara, Jet and Indian Airlines are operating to Kathmandu even with reduced fare due to prestige issue that makes it difficult for them to pull out. How is the problem with collection of bills? We follow a system of 22 days credit and it is observed well. Are you planning to cut down on intermediary margins by introducing computerized reservation? No. We have been following the system of encouraging reservations through the agents. We want this to continue. Yes, we are already using our own indigenously developed reservation software, but it is for the ease of the agents not to make them redundant. What other major issues are there facing this industry? We want hangar for Buddha Air and it is an integral part of an airline business. But CAAN has put an impractical condition that we should hand it over to CAAN after five years. This is too short to get the return from the investment. We need the lease for 30-40 years. Similarly, there are some taxation issues. The rental tax on the craft taken on lease is 15%. The tax law has treated it at par with the house rent tax. That is not logical. Our demand is to make it 3% as in the past. Though the airlines have not paid this tax so far, they will be forced to pay it any time now.

The ongoing conflict has forced a large section of Nepali population to shift to air travel to avoid the hassles of road travel, thereby, recording a substantial increase in air passenger numbers.

The combined result of closing down of some airlines and increase in passenger number has been two fold. While existing airlines have gone for fleet expansion, new airlines are preparing their entrance. The Civil Aviation Authority of Nepal (CAAN) issued Air Operating Certificates (AOC) to three new airline companies early April and soon the Ministry of Culture, Tourism and Civil Aviation (MoCTCA) issued license to three more airline companies (see box).

The larger question still remains.

Is the current boom in the airline passenger number a temporary phenomenon ? The Airline operators are convinced that is a sustainable growth thus, even existing airlines are going for fleet expansion.

This also breaks the conventional wisdom that airlines business in Nepal is dependent on tourism. According to the old theory, tourists who pay, as airfare, almost double the amount charged to Nepali passenger (that too in foreign exchange) are a must to sustain the airline business. But the current flurry of fleet expansion and new airlines entering the market is taking place at a time when the declining trend in the tourist arrival seems to have reached the nadir with no hope for the reversal of the trend in the foreseeable future. Added to it is the fact that the most sought after routes by the airlines are those connecting the hub airports (Kathmandu, Biratnagar, Bhairahawa, Pokhara and Nepalgunj). Tourist destinations like Lukla (gateway to the Mt. Everest region) are placed second in the priority by the new airlines while seeking the license.

Fare Play

And the resultant competition has done good for the passengers. When Cosmic Air introduced jet service with its 100 seater Fokker aircraft on the trunk routes (connecting Hub Airports), it did so by triggering a price war among the airlines. The latest situation is that, the airfare on Kathmandu-Biratnagar route has come down to the minimum limit allowed by Civil Aviation Authority of Nepal (CAAN), the regulator of this business. Surprisingly, this war has not affected other routes.

Industry watchers doubt the sustainability of these fares (see box in page 39 about how cosmic is incurring loees). Buddha and Yeti Air, which are jointly fighting the predatory pricing by cosmic, say the current fare reduction from them is as an "off-season" phenomenon, hinting that they will increase it to the normal level when the next tourism season comes. But Cosmic's seems to be prepared for a longer-term game. Sources close to the industry conclude that Cosmic must have acquired the Fokkers on so easy payment terms that it does not need to worry about return on investment. Added to that is the non-payment of various dues on other liabilities. For example, it is learnt that Cosmic has an overdue amount of Rs. 15 million to be paid to CAAN and still higher amount to Nepal Oil Corporation and airline’s own staff. As a result of this pricing war, all the airlines (other than Cosmic, Yeti and RNAC) have been driven away of Biratnager-Kathmandu route.

Globally, airline business operate on very tight margins, which explains the high frequency of mergers and acquisitions in this industry across the globe. Many airlines operate on hidden subsidies from their respective governments (that maintain the airline for strategic reasons) or a group of tour operators whose business is helped by the airline.

The fuel and human resource cost heads represent the highest cost components of the airlines operations; therefore, the biggest challenge is to optimize the fuel usage and source cheap supply of aviation fuel, therefore, gulf based airlines supposedly have an advantage. A recent news report about Gulf Air revealed that even they are hit by the high oil bill as most of its fueling is outside the home country.

No airline can have advantage in terms of human resource cost, as the salary and benefits to be provided to the people needed by this industry is almost comparable all across the world. This has also resulted in the growing popularity of no-frills airlines that manage with lower fares by reducing various expenses such as in-flight food and drinks and avoiding the middle-men such as travel agencies.

Nepali airlines are in dis-advantage on both of these counts - the fuel here is one of costliest in the world and the human resource is more difficult to find. Moreover, while the airlines in advanced countries are managing to reduce the involvement of the intermediaries by increased application of Information Technology, Nepali airlines are severely constrained in this aspect because of low level of Internet penetration in Nepal.

How the ongoing price war will continue in the future will thus depend on answers to a number of questions. First, how long the competitors will be able to sustain the reduced fare? Second, will they develop new modes of doing business? Third, will the alliance between Buddha and Yeti (the two airlines with the largest fleet size in terms of available seats after Cosmic and RNAC) be able to survive and involve more airlines into the alliance? And, will the government or CAAN be tempted to interfere in this war to ensure that this war does not cause any catastrophe to the entire sector?

Remote Areas Neglected

The ongoing price war also brings to the fore the neglect by the airlines to serve the remote areas where the only mode of modern transport available is air service. But serving these areas is not so lucrative as the trunk routes. The reason are two: First, the price allowed to the airlines by the regulator to charge on these routes is not enough to cover the operating costs. The decline in the number of tourists (from whom the airlines would collect higher fares and compensate the loss from the local passengers) has added further problem to the airlines to serve in those sectors. Second, since the airlines are increasingly going for new types of craft, their existing fleet has very few craft suitable for landing at the grass runways of these areas. Though the government has a plan to bring out a mechanism under which the flights to remote areas are to be compensated out of the fares collected from the trunk routes, the scheme has been in hibernation for quite long and nobody knows when it will be actually implemented.

Another solution to the problem is the service of helicopters, but that too is not serving the purpose due to the prohibitive costs and fares of the helicopters.

International Route

Despite the massive decline in tourist arrivals in the recent years, the international airlines flying in and out of Nepal are doing good business as shown by the number of passengers and cargo carried by them. The main reason for the upward movement is the growing number of Nepalis who go abroad for work. Therefore, the main growth in the passenger movement is on routes connecting Kathamdnu with the Gulf or Malaysia, the areas with the highest concentration of Nepali migrant workers. Similarly, also the number of Nepalis going abroad for study and other various purposes is increasing.

This also explains how Qatar Airways was able to get the right to fly to Kuala Lumpur from Nepal (called the "fifth freedom" in the official parlance). It wanted the Kuala Lumpur route for the same reason for which it is operating the Gulf route - assurance of steady traffic of the migrant workers. The company gets cheap fuel at home and thus its operating costs are lower compared to other airlines. Similarly, being an airline that provides Kathmandu with European tourist market it was in a better bargaining position with the government of Nepal.

Though Qatar Air, Gulf Air and Thai Airways are also bringing in a significant number of tourists due to their onward connection with Europe, America, South East Asia and North East Asia, (Nepal's major tourist originating markets after India), thus making RNAC redundant to a significant extent, the tourism entrepreneurs have been stressing on the need to strengthen the RNAC. Given the international scenario in which airlines are very rarely reporting profits (that too of insignificant amount) RNAC cannot be expected to be profitable either. But RNAC will be handy in time of urgency, for example in launching different types of promotional tourism packages. Though also the international airlines can be used to launch such programs, the decision making process in their case is longer as the local office of such airlines needs to consult the head office first before approving the proposal, whereas in case of RNAC the decision can be taken faster as its head office is here (assuming that the RNAC bureaucracy does not play the spoilsport). "Therefore, we need to strengthen RNAC and make it operate on long haul flights to reduce the travel hassle so that tourists who want to visit Nepal but change their mind because of the lack of direct flight can come to Nepal," say the tourism entrepreneurs. Perhaps making the tour operators and hotels share the loss of RNAC incurred by operating such routes would be a viable idea. But whether they will be actually ready to share the loss is still a question.

However, recently the Nepali authorities have granted permits to more Nepali airlines to conduct international flights. While it is expected to fill up the gap left by RNAC's inefficiency, only Cosmic Air has actually started flying abroad. The others are just squatting on the license. Some such airlines recently won court cases to get their licenses renewed even though they failed to start their operations within the normally allowed time period. But as Cosmic's entry into Kathmandu-Delhi route triggered a price war also in this sector, it is likely that the other airlines may postpone their operations at least in those routes where they will have to compete directly with Cosmic. Foreign airlines serving the same routes as Cosmic (such as Kathmandu-Delhi) have already responded by matching reductions in the fares and offering additional benefits to retain their market share. Since in Delhi route the main competitors are Indian companies and they can offer further connections with other Indian destinations, Cosmic may have tough time also in this sector.

Infrastructural Constraints

Though the civil aviation business is growing, the speed is not matched by expansion in the existing infrastructure. While the need for bringing in wider-bodies aircraft requires an international airport with bigger and longer runway than that in Tribhuvan International Airport (TIA), a study has concluded that TIA will not be enough to handle the increased volume of air traffic by 2015 AD. But the selection of site for the alternate international airport is still not finalized, let alone the start of construction.

More pressing problem is the lack of sufficient physical facility in the existing airports. Airlines are demanding space for hangar, but CAAN says it is not in a position to provide it in Kathmandu. To address the growth needs of the industry, setting up an institute to provide technical training for the engineers, pilots and the like is another urgency.

But the airports are lacking even in less trivial facilities. Toilets are not properly maintained, telephone booths are either unavailable or insufficient and overall cleanliness is poor. Airline operators wonder how CAAN uses the money it collects as landing fees and passenger service fees from airlines and airport fees from the passengers. While they also complain of the charges being high, CAAN is planning to increase these charges, as the collections are not enough to meet the expenses. CAAN sources say they are incurring losses in their operations. According to CAAN, the landing fees, parking fees and navigational charges it levies on the airlines are not increased since 1992. Rather they were reduced recently by some 30% on the international flights and by 20% on domestic flights on the pressure of airlines. Moreover, in case of the international airlines, CAAN says the landing charge in Nepal is comparable with the average of the South Asian countries. However, it is also a fact that the charges in Nepal are higher than in India, Sri Lanka and Maldives and lower than in Pakistan and Bangladesh. Since the countries with higher charges are those with very small tourism industry, while those with strong tourism industry have lower charges, CAAN's plan to go for higher charges may further jeopardize Nepal's tourism sector.

Role of Foreign Airlines

Despite the emphasis of the tourism industrialists about the need to strengthen RNAC, the contribution of foreign airlines in the Nepali economy cannot be underestimated. Those that have continued flying into the country (such as Thai, Qatar, Gulf, Martin Air seasonally, Indian Airlines, Sahara, Jet Airways) even when the image of Nepal is tarnished in the world and tourists flow has reduced, can be regarded as serving to dispel such perception to some extent.

Equally urgent problem facing the industry is that of human resource. According to one recent news report, among the different business sectors, civil aviation is the one with the largest number of foreign workers. Though the numbers at the lower levels are not available immediately, the report looks true in case of senior levels. Most of the airlines are heavily dependent on foreign pilots. If the demand increases at their respective home countries, they may leave the job with Nepali airline and opt for home carrier. Such a demand increases in already seen in India where a number of new airlines have recently went on air and more are almost ready to take off. This has led to the poaching of pilots among the airlines there. This will further increase the operating cost of the Nepali airlines as they will have to pay higher to the pilots lest they be attracted to Indian airlines.

Similar human resource problems are there, concede the airline operators, also at other levels, particularly in engineering field.

Dog Fight by Gaurav Serchan

Many of the airlines companies in the past have closed shop and a few are struggling to stay afloat with just one or two aircrafts. Buddha Air (BA) and Yeti Airlines (YA) have, however, managed to successfully weather the downturn in the airlines industry after 9/11 and worsening tourism business in the country caused by the ongoing Maoist insurgency.

For the last two years, BA has been focusing its operations in a few sectors while Yeti Airlines was focusing on certain tourism sectors. In almost seven years of operation, the lowest occupancy rate for BA was recorded at 81.6 percent (Source: BA Company Profile) in 2000/01. BA’s success to maintain high occupancy rates was partly due to monopoly in certain sectors and partly due the 19-seater Beech crafts which BA claims to be the most suitable for Nepal due to its ideal seating capacity, reliability and speed. “As all routes in Nepal have a small volume, it is not practical to use aircraft with a large seating capacity. The small carrying capacity of our planes gives us the flexibility to adjust the frequency of flights”, says Rupesh Joshi, Manager-Marketing/Corporate Affairs. They argue that even Yeti, which recently inducted SAAB into its fleet, is having a tough time to gain the minimum required occupancy.

Is it, however, safe to assume that turbo prop is the only way to go in a market where the possibility of using jets has never been explored? Competitor Cosmic Airlines thinks otherwise. “Though our jets cannot reach maximum occupancy, our operating costs are nevertheless lower than BA,” says Upendra Karki, Marketing Director of Cosmic Air. Introduction of a jet may just provide an opportunity to lower per passenger costs and make air travel a mode of transport for many more Nepalis as Cosmic envisions. After all, how can we ascertain that turbo props are the only viable aircraft when we have never tried the jets? BA is, however, wary of trying it out at present. If jets do work for the domestic trunk route, it may be too late for BA by the time it is proved.

The introduction of Fokker by Cosmic Airlines marked a new beginning in the domestic airlines. Even those Nepalis who had never travelled abroad got a taste of travelling in a big jet aircraft which not only is more comfortable than small turbo props but also experiences less turbulence. With a larger load capacity of 105 seats in its Fokker, Cosmic Air surely enjoys the ability to adopt a multiple pricing strategy but loses out on flexibility and the need to have a large customer base. That explains why Cosmic has launched a campaign to increase the market size through short-term promotional offer that attempt to wean customers off the competitors and convert land travellers to air travellers.

Cosmic’s bid to attract competitor’s customers seems to have worked as 44 percent of flyers who specified BA as their main brand were found to be using Cosmic during the time of a survey conducted by Orion early May, while only 18 percent of flyers who specified Cosmic as their main brand were using BA. Though a large part of temporary switch may be due to attractive short-term consumer schemes, it nevertheless provides Cosmic with the opportunity to prove its point. BA on the other hand, maintains that its mileage card is working perfectly fine even in the present context and outplays any other consumer schemes in the long run.

While BA and Yeti were on a wait and watch strategy, Cosmic seems to have made a lot of headway in achieving 34 percent Top of Mind (TOM) recall, though it is still behind BA which has a TOM recall of 50 percent. In a short span of time, Cosmic has been successful in creating a high TOM mainly due to the buzz created by the introduction of Fokker and lower prices.

The buzz created by Cosmic by giving away one motorcycle as a lucky prize on every flight and cheap air tickets not only increased its occupancy to 80 percent in the Biratnagar sector and almost 100 percent in the Nepalgunj and Bhairahawa sectors but also forced it to increase the frequency marking an increase in the market size: traffic in Biratnagar sector almost touched 500 seats per day, up from 250 in the recent past. Though BA had to reduce frequency from seven flights to three in the Ktm-Brt sector soon after Fokker's entry, it now operates an average of six flights daily while Cosmic operates four flights daily. Such an increase in flight frequency was only possible due to the increase in traffic. In our survey, 41 percent of the respondents stated that they don't always travel by air. Among them, one-third (34 percent) were found to have opted to travel by air due to the low airfare. The time for attempting to increase market penetration also seems to be just right as travelling by land has now become really time consuming due to frequent hassles (78 percent respondents in our survey stated that travelling by land takes a long time) and regarded to be unsafe (56 percent stated that they opted to travel by air due to safety reasons). The issue as to what percentage of the new air travellers will continue travelling by air once the airline prices go up, however, remains unanswered. Rise in air fare is unavoidable due to the economics of operating the business.

In light of the new market scenario, BA and Yeti jointly slashed market prices in response to Cosmic's multiple pricing strategy triggering a price war in the air. At the prevailing market price, BA says that it will make a net loss of two to three crore rupees in Biratnagar sector alone in a year but claims to be capable of covering the losses through other profitable sectors while in BA's estimation Cosmic is facing losses in all sectors. Cosmic sources too believe that the existing market price is not financially viable but they say the price reduction was essential for them to encourage trial and increase the market size. Upendra Karki argues, "The entire market may face difficulties in the short run, but we have been able to increase the size of the market which will eventually benefit the entire industry as well as the consumers."

BA in particular maintains that they have a large base of loyal customers, which they have built over the years, a result of their commitment to consistency in quality service, despite enjoying monopoly in the market. They claim that they have 20,000 customers as members of their Royal Club who even today choose BA over any other airlines due to the consistency in flight timings, commitment to safety and reliability. BA believes it has an edge over its competitors due to its consistency in its service standards and the type of aircraft it uses. On the other hand, though Cosmic admits that it did fall behind in service at the initial phase, it claims it has now improved on that count as its systems are falling in place. "The scheme to give Rs.250 refund if a flight is delayed by more than three hours and a free ticket if a flight is cancelled altogether is a guarantee of our commitment towards service standards. It is simply not possible to continue functioning this way if we don't live up to our commitment," Karki asserted. In the survey, BA no doubt was seen to have a higher percentage of very satisfied customers (48 percent ) followed by somewhat satisfied customers (46 percent). BA should, however, take note that 36 percent of those who said Cosmic was their main brand also stated that they were very satisfied with Cosmic's service and another 61 percent were somewhat satisfied; showing that Cosmic Air is also coming up in terms of its service.

When asked for reasons for satisfaction, over half (53 percent) of those who said Cosmic was thier main brand stated that overall service and facility of Cosmic is good vis-à-vis 35 percent of BA. "Comfort", "doesn't shake", "big planes, so feels like going abroad" were other reasons mentioned. Though a higher percentage (34 percent) of those who mentioned BA as their main brand stated that BA has a good time table, Cosmic is not far behind than BA also in this count. About 24 percent of those who identified Cosmic as their main brand were satisfied with the time table of Cosmic.

While the trust developed by BA over the years is no doubt an asset, it is certainly not a sure measure of protection against new market entrants. Cosmic's aggressive sales strategy combined with their branding campaign vis-à-vis BA's docile sales approach can spell disaster for BA in the future. Our market survey shows that Cosmic is fast catching up. Though BA is certainly ahead in the more important attributes such as safety, timely flight and service, it should take note that Cosmic is also not far behind. Yeti on the other hand already seems to be losing out as they have already taken third place overall though it is at par with both BA and Cosmic in terms of ticket price.

Though BA may like to assume that its market is protected due to its large base of loyal customers, it should note that customers are always on the look out for better deals. Our survey shows that almost half (48 percent) of the air travellers are not sure whether they will continue using the airlines that they consider to be their main brand. They should take further note that one-fifth (22 percent) have already made a decision at present to shift to another brand while half (48 percent) are not sure whether to hold on or move. Likewise, almost half (44 percent) of the customers who take Cosmic as their main brand have expressed that they are not sure what they will do in the future. Taking into consideration that the trial rate has always been high among the Nepali customers, the findings of the survey reveal that it is too early to say which way the customers will sway in the future but one thing is for certain that the results will ultimately depend on how well Cosmic can service the trial users and its loyal customers who are currently in a fix.

As prices have to move upward in the near future, all players can enjoy the current spell of high trials and volume but they must focus on developing a brand and a system for delivering consistent quality services. Once prices are back to normal levels and the attractive consumer schemes end, the volume will no doubt shrink to a certain extent and that is when Cosmic may again feel the pinch, unless of course it follows the path of the noodles industry. BA on the other hand may have to rethink their entire operations if jets do turn out to be an economically feasible option for domestic air services and Cosmic delivers value to its customers.

(Sherchan is Managing Director of Orion Associates, a market research and consultancy company)