Himalaya Airlines, a joint venture of Tibetan Civil Aviation Development & Investment Company Ltd (TCADIC) and Yeti World Investment Pvt Ltd, has been operating international flights from Nepal for the past eight years. With a fleet of four aircraft, the airline currently operates passenger flights to destinations in the UAE, Malaysia, Qatar, Saudi Arabia, Kuwait, Bangladesh and China. Vijay Shrestha , Vice President of Administration, has been with Himalaya Airlines since its inception. He has extensive experience in successfully launching both domestic and international airlines in Nepal, including two joint venture international airlines. Mukul Humagain of New Business Age spoke with Shrestha about the airlines' current status, challenges in the Nepali aviation industry, future plans, and the postCOVID scenario. Excerpts:

Himalaya Airlines has experienced rapid growth in recent years and is now among the top three airlines in Nepal in terms of international passenger movement. What do you attribute this growth to? 

We started the Himalaya Airlines as a joint venture in 2014 with the goal of commencing flight operations in 2015. Although we planned to receive our first aircraft in June 2015, the 2015 earthquakes disrupted our plans forcing us to delay the launch of our services by over a year. The preparations we undertook, including setting up maintenance and training facilities, hiring employees, and managing payroll, represented a significant pre-operating investment for us. This was a major initial challenge in establishing our business properly.

Our first aircraft arrived in 2016 and we initially operated a few chartered flights. In October 2016, we began flying to Qatar and subsequently launched our scheduled flights. In 2017, we added another aircraft to our fleet. However, 2018 was challenging for us due to a surge in fuel prices which significantly impacted our operations, costs and traffic volume. Although we managed to operate flights smoothly in 2019, the following year was disrupted by the COVID-19 pandemic. 

What I am trying to say is that we have never experienced smooth sailing from the start. Our operations have been disrupted by various challenges - from the 2015 earthquakes and the COVID-19 pandemic to the post-COVID economic slowdown. These obstacles hindered us from achieving our growth objectives. Our initial plan was to add one aircraft each year. Had everything gone as planned, we would have had more than 6-7 aircraft by now. 

What challenges is Himalaya Airlines facing at present, and how are you addressing them? What are the near term growth and expansion opportunities? 

The government enforced value-added tax (VAT) on aircraft imports for international operators through the budget for fiscal year 2023/24. The price of Airbus A320 aircraft ranges from $100 million to $125 million. This means we would have to pay the government around Rs 2 billion in advance before operating the aircraft which would have been impractical. We held discussions with the relevant authorities, and while everyone acknowledged that this was an improper decision, it was not revoked at that time. However, the budget for the current fiscal year has now reversed this decision.

The customs duties imposed by the government on the import of aircraft spare parts also create an uneven playing field, making it challenging for us to compete with foreign airlines. 

Another challenge that we are facing is the high cost of aviation fuel. The Nepal Oil Corporation (NOC) charges us atleast 60%, and sometimes up to 100%, more than the international market rate for aviation fuel. While many foreign airlines with larger aircraft do not need to refuel in Nepal, local airlines like ours operating the A320 must carry fewer passengers if we choose to refuel abroad. This discrepancy has created a significant cost disparity between local and foreign airlines. 

The government refunds VAT on aviation turbine fuel for domestic airlines, but we do not benefit from this facility because we are charged a bonded price. The government has failed to create an environment conducive to the growth of Nepali international airlines. 

The airline business is often seen as cash-intensive. What is the current financial situation of Himalaya Airlines? 

So far, we have incurred accumulated losses of Rs 15 billion, averaging roughly Rs 1.5 billion in annual losses. Despite this, the overall performance of Himalaya Airlines in safety management, operational management and security management has been very satisfactory. 

Himalaya Airlines is the first airline in the history of Nepali aviation, spanning over 70 years, to achieve global standards of aviation safety. International audits have highlighted to the Civil Aviation Authority of Nepal (CAAN) that Himalaya Airlines meets the safety standards of some of the best airlines in the Asia-Pacific region. Our fleet planning ensures minimal downtime for our aircraft, and our resource utilisation, encompassing crew, maintenance and overall manpower, is highly competitive in terms of per-unit cost. 

On the revenue side, our performance is strong given the circumstances. However, the imbalance between cost and revenue arises not from management issues but from tax-related factors. The tax regime is a critical factor negatively impacting the sustainability and profitability of the airline. In many respects, Nepal Airlines Corporation (NAC) and Himalaya Airlines are in similar situations.

Therefore, the government needs to step forward and better understand the business environment and the competitive challenges we face in the international market. It is crucial to revise government policies to create a level playing field for all competing airlines. 

How has business growth been before and after the pandemic? How many new destinations has Himalaya Airlines added since the pandemic? 

We have not experienced significant growth due to our limited capacity. This year, we have been operating to the same destinations with the same number of aircraft as in 2023. We do not have a clearly profitable sector as the market remains flexible. The airline industry can be both reactive and proactive, and we do not operate in a monopoly sector. 

Before the COVID-19 pandemic, we had five destinations in China. Although we resumed flights to cities like Lhasa, Beijing, Chongqing, Qingdao, and Shanghai after the pandemic, passenger movement has been low, except for our pre-COVID network in the Middle East and Southeast Asia. During the pandemic, we assisted the government by operating repatriation flights but were allocated fewer flights compared to Nepal Airlines. 

Our mission was to operate 10 aircraft and bring one million Chinese tourists to Nepal each year. However, this cannot be accomplished solely through the airline's efforts. Government policy is a crucial factor in the aviation industry. We must adhere to numerous rules from both domestic and destination countries, in addition to international aviation regulations. 

IATA has predicted that international air traffic will reach pre-COVID levels this year, and the trend has been positive so far. We have been maintaining a decent number of flights despite growing competition. Currently, we operate flights to Riyadh, Dammam, Dubai, Doha, Kuala Lumpur, Dhaka, Lhasa, Qingdao, Shanghai, Chongqing, and Beijing. 

In January, 2024, Himalaya Airlines became an IOSA registered operator, the first airline in Nepal to do so. What does it mean to Himalaya Airlines and Nepali aviation sector? 

The IATA Operational Safety Audit (IOSA) is considered the gold standard in aviation safety, and many major airlines have achieved it. Attaining this certification signifies that our safety standards are on par with global benchmarks. Following this achievement, we became a member of the International Air Transport Association (IATA). This enables us to enter into joint commercial agreements with international airlines. 

IOSA certification has to be renewed every two years. Our next renewal is scheduled for March, with the auditing process set to begin in November. The fact that Nepal has an IATA-audited airline reflects that our regulator, Civil Aviation Authority of Nepal (CAAN), has been performing well. This accomplishment sends a favourable message about Nepal’s aviation safety standards to the global aviation community. 

Himalaya Airlines currently operates a fleet of four aircraft – three A320s and one A319. There were plans to add two aircraft soon. When will the new aircraft arrive? 

Our initial plan was to add one aircraft each year. However, this plan had to be shelved due to the government's tax regime. Unless the government reforms its tax and other policies, rules and regulations to provide a level playing field, it is difficult for us to expand our fleet. 

We are a loss-making airline which makes it difficult to secure loans from lenders. We are not allowed to take a loan from our parent company, according to the existing regulations. Consequently, we have had to rely on our parent company for funding. If we are unable to obtain loans from the parent company, we will be unable to acquire new aircraft. 

Aircraft acquisition involves significant capital risk. If we choose to take this risk solely for the purpose of expanding our fleet, will the government support us with tax incentives? If the government adopts positive policies for Nepal's international aviation sector, both Himalaya and NAC will benefit and grow. My view has always been that we should collectively advocate for the government to protect NAC, the national flag carrier, while also ensuring a level playing field for other airlines like ours. 

While NAC and Himalaya each operate four aircraft, our competitors, such as Indigo, Air China, and Qatar Airways, operate many more. With their extensive global networks and state support, they outpace us in the competition. In contrast, we lack government support, investment and a favourable investment climate. 

The government also imposed VAT on international airline tickets from the previous fiscal year. How has it impacted airlines? 

We need to see it from a tourist's perspective. For tourists, Nepal is one of several competing destinations, and the added cost can influence their choice. Airfare is the largest component of the total travel cost for international travellers coming to Nepal. It was already expensive, and the imposition of VAT has made it even costlier. The government's policies appear contradictory, as it declared a tourism decade to attract more visitors in the last fiscal year's budget while simultaneously imposing a 13% VAT on international airfares. Although it is claimed that the number of tourists has returned to pre-COVID levels, it is important to separately analyse whether Nepal is attracting genuine tourists who contribute meaningfully to the tourism sector. 

Additionally, despite the increase in visitor numbers, the travel industry now has more inventory compared to the pre-COVID period. The supply capacity of the hotel industry has grown disproportionately relative to the number of visitors, creating challenges for hoteliers and others in the hospitality sector. Tourism entrepreneurs are also struggling with difficulties in repaying bank loans. 

The recent Saurya Airlines crash has brought questions about Nepal's air safety to the forefront again. Do you believe that splitting the CAAN into two separate entities - one for service provision and the other for regulation - would be a step in the right direction? 

It is not for the private sector to dictate how the government should structure or manage its organisations. It is up to the government to make decisions regarding what is the best way to improve air safety issues in the country. 

While Nepal's overall aviation safety record may not be exemplary at the moment, there are unique aspects to consider. For instance, Nepal’s helicopter operations and STOL (Short Takeoff and Landing) operations are distinctive and cannot be directly compared to those in other countries. Experts have said that Nepal’s mountain aviation safety standards are comparatively better, though I have not personally analysed the data. The safety record for urban areas is also positive. Overall, both domestic and international aviation safety in Nepal have been good. However, we need to be more proactive in further improving safety standards. 

How do you think the aviation business would have benefitted had the two international airports in Pokhara and Bhairahawa been fully operational? 

We must recognise that aviation is also a business. Tribhuvan International Airport (TIA) can be seen as an established facility. As the demand for air travel increased, Nepal decided to open additional airports in Pokhara and Bhairahawa. Passengers will continue to use TIA as long as it meets their needs. The new international airports in Bhairahawa and Pokhara have yet to become fully operational due to a lack of initial passengers and airlines. Once TIA reaches full capacity, existing airlines may start operating additional flights to these new airports, and new airlines may also begin services there. 

If we are to attract more passengers and international airlines to these airports, we need to focus on offering competitive prices and high-quality services. Authorities can not compel international airlines to start flights from these new airports. They, however, can offer incentives to airlines to encourage them to operate from these new airports. For instance, when Himalaya Airlines launched its Kuala Lumpur flights, the Malaysian authorities provided us with 500,000 Malaysian Ringgit for promotional activities. 

The Supreme Court has decided in favour of Himalaya Airlines in the ground handling dispute. How will you move forward now? 

The Supreme Court's verdict has granted us the right to handle ground operations as per the law. After the verdict was executed by the CAAN, we have issued e-tenders to purchase the necessary equipment for ground handling at TIA. We will begin self-ground handling operations at TIA once these preparations are complete. 

Regarding Gautam Buddha International Airport and the operation of regular flights from there, we have requested that commercial ground handling rights, which are currently managed by NAC, be granted to us. We do not expect ground handling operations to be profitable for us for at least 5-10 years, until more airlines start operating through the airport. As of now, it appears that the government has not made any decision on this matter.

(The interview was published on the August issue of the New Business Age magazine . )