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Air Travel: Safety over Price?
Political disruption is a direct barrier to development in Bangladesh. For over a month, transportation has been a nightmare given that there are continuous blockades and strikes. This has a direct impact on freight costs, delivery time lag, expense due to damaged inventory and the likes. Since roads and rivers are clearly unsafe given the political unrest, the only reliable means of transportation left is air travel. While there is supposed to be a direct positive correlation between the degree of political turmoil and the number of passengers in domestic flights, the reality is somewhat more complex owing to demand structures, legal complications, external competition, oil prices etc. This article aims to analyze these issues and provide insights on the domestic aviation industry.
There are currently five major companies in the aviation industry: Biman Bangladesh, United Airways, Regent Airways, Novo Air, and US-Bangla Airlines.
Biman Bangladesh Airlines, established in 1972, had a good number of domestic flights during its inception, but now mainly focuses on international flights with over 18 international destinations spread out throughout Asia and Europe while private sector players like United and Regent Airways both have been strongly focusing on domestic travel. But things have changed as now they have an increasing interest in international flights as well. Both of these airlines travel to destinations such as Kuala Lumpur, Bangkok, Kolkata and Singapore. More interestingly, Novo Air and US-Bangla Airways – two private sector players focus completely on the domestic arena i.e., they fly regularly to the usual destinations such as Chittagong, Cox’s Bazaar, Sylhet, and Jessore.
Taking a closer look at the carriers used by the respective companies, we can see a clear distinction between airlines which offer international flights and those that do not. Biman and United have high end carriers such as Boeing 777 and A 310s in contrast with the low capacity carriers such as Dash 8 Q400. High end carriers are only affordable by the top players of the market, since they are much more expensive. So, there is a general tendency for a company to start with local destinations and eventually move to international flights after acquiring the necessary revenue and brand image. There are also legal constraints put forth by CAAB and International Air Transport Association (IATA) that restricts the license for international flights based on factors like quality and quantity of carriers, number of passengers as well as staffs.
Demand for Domestic Flight
According to the Civil Aviation Authority, Bangladesh (CAAB), the combined annual market size of 2014 was worth USD 440 million, with 5.8 million passengers and 2.3 lakh tons of cargo.
As we can observe, there is a positive correlation of the passenger growth rate with the GDP growth rate. This is because of three broad reasons:
- A higher GDP equates to higher purchasing power, which incentivizes many to choose air travel within the country as an alternative to trains and buses.
- Given that the business environment is growing quite rapidly, saving time is quite crucial. Airplanes save at least 70% of a business executive’s travel time.
- A higher GDP often means higher FDI. Foreign nationals tend to choose air travel over other means of transport.
End of Part – 1.
Co-author: Sazzad Hossain, AVP and Taosif Amin Khan, Junior Associate at LightCastle Partners
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