‘High operating costs make aviation business difficult in Bangladesh’

Though the aviation sector in Bangladesh is rapidly growing – because of increasing business connections across the world and robust tourism growth – doing business here is still a challenge for foreign airlines as operating costs are high. 

The high cost of fuel, 15 percent Value Added Tax (VAT), poor ground handling services, and a complex process to repatriate funds complicate business for foreign airlines in Bangladesh. 

George Robertson, general manager of Singapore Airlines, Bangladesh made the observation while speaking with The Business Standard recently.

"The cost of operating a business in Bangladeshi airports is very high compared to that of neighbouring India," he said. 

For instance, airlines in Bangladesh have to pay VAT on aviation charges, contravening international standards. 

George explained, "We are sitting down with the government to review the charges and to find ways to rationalise them in line with international standards."

"The government wants to increase airline operations and seek more investment in the country – but the cost of operating is quite high," George pointed out, adding this means the potential for expanding the business is small.

The National Board of Revenue has imposed VAT on: landing, route navigation, security, boarding bridges, embarkation, and licence charges.

In February 2015, the revenue board served a notice to the Civil Aviation Authority of Bangladesh to pay its unpaid VAT from Fiscal Year 2009-10.

The International Air Transport Association (IATA) has continuously urged the Bangladesh government to waive the VAT saying it contradicts the policies and guidelines on taxation published by the International Civil Aviation Organisation.

Thirty-four-year-old George – who has been working in the aviation sector for 12 years – said foreign airlines are challenged by ground handling services.

He said, "Hazrat Shahjalal International Airport has only one ground handler, while other airports across the world have multiple ground handling companies." 

"Increased engagement of ground handling companies give more choices and competition. The competition is very good because it allows companies to improve their services, quality, and productivity," he argued.

Sometimes, airlines face difficulties in maintaining their flight schedules because of poor ground handling services and a lack of efficient manpower. 

"It is very important for airlines to receive smooth services and good manpower support to maintain on-time departures," he said. 

Currently, Bangladesh's national carrier Biman Bangladesh Airlines is working as the sole ground handler at Dhaka airport.

"We are giving our feedback to Biman to improve their ground handling services," he said.

"Hopefully, the construction of the third passenger terminal will bring about improvements to ground handling services because the Civil Aviation Authority has said they will open up doors for more companies to come in."

"The participation of more ground handling companies will improve the standard of service and increase productivity," he maintained.

He said the main factor in ground handling is not its cost, but the quality of the service offered. 

"Singapore Airlines is a premium international airline. Cost is an important consideration for it, but more important factors are the quality of service and manpower that we are getting from the ground handler; the quality of the equipment; and the ready supply to support its operations."  

"We have a new aircraft so we want to make sure that our ground handling partner is able to provide for all of our needs."

Biman's manpower for ground handling is inadequate, George stated, adding, "Because of poor ground handling support, we have to keep more staff members at Dhaka airport than at other airports."  

"Costs should be commensurate with the product and service that are being supplied," he shared.

"The price of jet fuel is comparatively high in Bangladesh, which also contributes to the high operating cost of the aviation business here," he said.

Fuel is very important because 30 to 45 percent of an airline company's expenditures are on fuel. The salaries of staffers account for 20 percent, and airport charges are about five to 10 percent of total expenditures.

Screening cargo is another cost component and cargo handling also performed by Biman. 

"We would like to see some regulatory changes in areas like VAT and the funds repatriation process."

"The process of taking funds outside the country is very complex and lengthy," he mentioned. 

"Airlines are required to submit documents for every ticket to the bank – for repatriation of funds – which is very time-consuming. For foreign airlines, this is a complex operation. As a result, it takes several months to take permission to remit funds to the head office," the general manager of Singapore Airlines argued.

"This is one of the major challenges of working in Bangladesh. India and some other countries have moved more progressively in regulatory changes allowing foreign airlines to operate smoothly," he claimed. 

Repatriation of funds in other countries is simpler for international airlines. 

He said in India, foreign airlines do not need to supply documentation for every ticket. Airline companies just pay the relevant tax on all sales.

George – who has been posted to Singapore Airlines' Bangladesh office for 12 months – said, "The aviation sector in Bangladesh has high potential to flourish, in the coming years, as the numbers of both outbound and inbound passengers have been increasing rapidly amid rising business connections with new countries." 

The numbers of Bangladeshi people travelling has increased significantly – mainly because members of the business community are exploring new opportunities across the world. 

"I think the potential is very good and we are excited about more inbound tourists in Bangladesh."

"Traditionally, outbound flights are performed very well but people are now increasingly coming from Japan, Singapore, the US, and China for tourism and investment purposes," George said, adding, "airlines operating in Bangladesh have been experiencing significant increases in passenger loads, enabling them to do good business."

Apart from robust growth in both numbers of inbound and outbound tourists, business connections between Bangladesh and other countries are deepening, contributing to growth in number of air passengers.

George said, "Large amounts of foreign direct investment are entering the country and many mega projects and partnerships represent tremendous potential for Bangladesh's aviation industry." 

"As businesses have been expanding across the world, air freight is also very important here. Aviation is able to create opportunities to expand exports for Bangladeshi customers," he said. 

Against this backdrop, Singapore Airlines offers good export opportunities for Bangladeshi businesses – such as garments and the companies which export perishable goods and seafood.

Every year, the aviation sector is witnessing good growth. In the last year, all airlines grew by more than 10 percent in terms of the number of passengers in Bangladesh. 

This growth rate should continue to expand as a lot of opportunities will open up in the aviation sector in the next five years. 

The government has already undertaken a mega investment to expand Hazrat Shahjalal International Airport – to enhance air transport services to an international standard.

With an investment of Tk21,399 crore, the government will build the much-awaited third terminal, which is expected to massively change the airport's capacity and security.

IATA, in its recent report, forecasts the growth of air transport in Bangladesh at 8.4 percent annually, until 2038, if current trends continue.

In 2018, air passenger flow was 7.2 million – which is predicted to increase to 19.3 million by 2038. The rise in air transport will add 6 lakh air passengers annually with a total of 12.1 million passenger departures per year.

The increased demand will create around 7,000 jobs every year, according to the report.

The IATA report shows that Bangladesh's air connectivity with cities around the world has almost doubled in the last five years.

"Singapore airlines is also expanding passenger services to seize the opportunities of the aviation sector," said George. 

As part of that, the airline began its Airbus A350-900 medium-haul aircraft service, for the first time in Bangladesh, on February 1. 

The demand for business class has been rising among Bangladeshi travellers – amid improving economic capacity – because of this, Singapore Airlines introduced its Airbus. 

The A350-900 medium-haul Business Class cabin has 40 seats in a 1-2-1 arrangement that ensures direct aisle access for every customer. The Economy Class cabin has 263 seats arranged in a 3-3-3 configuration.

Singapore Airlines is investing more in line with customers' demands and expectations. 

The airline company commenced its operations in Bangladesh in 1986 with two flights a week, "which has risen to 10 by now," he said.

"We want to increase the number of our flights but the economic factor is important here."

"Singapore Airlines is considering expanding its flights to 14 a week in the near future. However, this depends on how the government facilitates the situation and removes impediments to business," George said. 

Singapore Airlines' load factor was at a record high worldwide last year. 

The load factor is an indicator that measures the percentage of available seating capacity filled with passengers.

"We achieved a seat occupancy rate of around 83 to 84 percent, globally, which was the industry's highest performance."

In Bangladesh, the load factor was 80 percent last year – which was about 70 percent five years ago. 

Due to a rise in inbound passengers, the overall flight performance of Singapore Airlines is much better now. 

At the same time, airfare is decreasing and pricing is now more competitive.

For instance, the price for Dhaka-Singapore flights start at Tk29,000 for Economy Class – which was around Tk40,000 five years ago. 

"We made it possible by including new and fuel-efficient aircraft in the fleet – bringing down the operating cost per head."

The share of Singapore Airlines in Bangladesh's air passenger market is eight to 10 percent. 

"Singapore airlines began its operations in 1947 and its high-quality product, quality of services and extensive network made the airlines one of the best operators globally," he said.

He continued, "We offer industry-leading products that is why we have very young and latest-generation aircraft.

"We invest a lot to make sure comfort and service are at the highest level. Singapore Airlines is renowned for the quality of its service and this is because of its well-trained cabin crew."

Network is the third pillar of our organization, George said, adding, "We have 137 destinations across 37 countries. We maintain a very comfortable flight." 

Singapore Airlines was also the first airline in the world to operate the largest commercial aircraft in the world, the Airbus A380, in 2007.

In 2018, Singapore Airlines re-launched the longest commercial flight in the world between Singapore and New York with a flight duration of 18-and-a-half hours, he added. 

Sharing about his experience of living Bangladesh, British-origin George said the people are very friendly and hospitable here. 

He said access to high-speed internet, good telephone services and stable electricity are the basic requirements for running an office, for a foreign company, and the country has these.    

The biggest challenge is too much traffic – because of many projects being implemented. 

"I think the city is making a lot of progress because I see many foreign companies are coming here," he said.