State-run Biman Bangladesh Airlines is dumping seats into the domestic market and making the routes economically unworkable for local private carriers, said Novoair Managing Director Mofizur Rahman.
In an interview with The Daily Star at his office recently, Rahman said he welcomed competition but not at the cost of subsidies given to the state-run carrier.
“Biman dumps seats in Chittagong at a price that will make other domestic carriers' businesses unviable even with a very high load factor,” he said.
The flag carrier offers tickets at Tk 1,500 on the Chittagong to Dhaka route -- a fare that is even lower than a trip on an air-conditioned bus on the same route.
However, Shakil Meraj, general manager for public relations of Biman, denied Novoair's allegation, saying the price is determined by the market.
“A seat in a plane is a perishable product. So, we have to do our best to maximise the revenue,” Meraj said, while acknowledging that Biman sells a seat as low as Tk 1,500 on the Chittagong-Dhaka route.
Novoair, which stepped into its sixth year of operation last week, hopes that all airlines, including Biman, will relinquish unhealthy competition in a bid to create a level playing field.
Rahman, who retired from Bangladesh Air Force in 2006 as group captain, said the airline business is capital intensive and the margin is as low as 2 percent.
The airline almost hit breakeven in just two years of operation, but the situation reversed when Biman resumed its domestic flights in early 2015 after a hiatus of seven years.
At that time, Biman connected Chittagong and Sylhet with some of its international flights before landing in Dhaka, the last destination.
As most of the seats become vacant in Chittagong, the state-run carrier started to dump seats at prices far lower than the market rate in order to carry passengers from the port city to the capital.
“Biman's move to dump seats has cost us a lot even with the steady growth of load factor.”
Now, two other private airlines -- US Bangla and Regent -- that also operate international flights through Chittagong are following Biman's lead footstep, Rahman said.
This unhealthy competition has forced Novoair to cut down its price from Tk 5,000-5,500 to Tk 2,000- 2,300 for the Chittagong to Dhaka route, even after a significant rise in cost.
For example, the fuel cost has gone up by 40 percent in the last six months, according to Rahman.
“We are on the negative growth now in terms of yield (net revenue) despite 75-80 percent load factor. Even 100 percent load factor cannot make our business commercially viable with this level of price in Chitagong.”
Chittagong alone accounts for 65 percent of all domestic passengers, followed by Cox's Bazar and Saidpur, according to the Novoair CEO.
Rahman said they are in talks with other domestic airlines about this unhealthy price competition. Yet, he said he does not like to fix a price that will affect passengers.
“We want a price that will create a healthy competition and will help us to grow and make our businesses viable.” Otherwise, a 100 percent occupancy rate is not good enough for the airline's sustainability.
Novoair now operates flights to Chittagong, Cox's Bazar, Jessore, Sylhet and Saidpur with its four 68-seater ATR-72-500 aircraft; it also has a daily flight to Kolkata from Dhaka.
So far, it has run more than 33,000 flights and served about 15 lakh customers on domestic and international routes with a 97.57 percent on-time performance, it said. It presently employs 700 people.
Rahman also talked about the future business prospect, regulatory issues and the fast-growing helicopter service.
As Bangladesh's surface communication is still bad and there is hardly any chance to improve the conditions significantly in the near future, he sees the domestic airline business going from strength to strength.
Domestic travel by air is increasingly becoming affordable, Rahman said.
“A 6 to 7 percent growth in passenger is natural and that will continue to happen in the years to come.”
The former air force official also criticised the civil aviation and airport authority for not providing the expected services to airlines.
Biman runs all the ground handling work at the Hazrat Shahjalal International Airport.
“Both the carriers and passengers have to suffer for Biman's poor services at the airport,” he said, while citing the long wait time to get luggage as an example.
It takes an hour to reach Dhaka from Kathmandu but it takes another two hours to get the luggage, the Novoair CEO said.
Padma Oil, another state-owned company, supplies fuel to all aircraft and no other company is allowed to enter this line.
“In Kolkata, three companies provide fuel and that provides a fair and competitive market for airlines,” Rahman said, while calling an end to the monopoly in ground handling and fuel supply.
Rahman also welcomed the growing private aviation business, saying that it does not get in the way of airlines' business.
“The growing use of general aviation indicates that our industrial activities are rising,” he added.