capacity development of civil aviation authority of nepal

Capacity Development of Civil Aviation Authority of Nepal

NATIONAL TRANSPORT PLAN Current Situation and Diagnostic. DRAFT

SEPTEMBER 2012



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The present document is embedded into the Project “Capacity Development of Civil Aviation Authority of Nepal“, more specifically into the part “2A- National Plan for Civil Aviation Development”.

The main aim of this document is to analyze the current situation of air transport in Nepal, including the existing:

a) International Agreements

b) Legal Framework and Regulations

c) Air Transport Network

a. Airlines

b. Air routes

c. Traffic Characteristics

This first diagnostic of the current state of operation will be used to perform a SWOT analysis which can help the experts to design a 20-years strategic plan for Civil Aviation Development.



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INDEX

1. Introduction ...................................................................................................... 8

2. Nepal economics ............................................................................................... 8

3. Stage of development ..................................................................................... 11

4. Tourism in Nepal ............................................................................................. 13

5. Multilateral agreements of Nepal ................................................................... 14

6. Bilateral agreements ....................................................................................... 15

7. Air transport policy issues (Civil Aviation Policy 2006) ...................................... 16

8. Licensing and juridical background .................................................................. 16

9. Airlines classification ....................................................................................... 18

10. Airfares and Ticket prices ................................................................................ 18 Charges to flights operators .................................................................................................... 20

11. Air network in Nepal ....................................................................................... 22A. Domestic Traffic .................................................................................................... 22

Domestic airlines data ............................................................................................................. 24

Fixed Wing Operators .............................................................................................................. 28

Rotor Wing Operators ............................................................................................................. 37

B. International Traffic ............................................................................................... 41

International airlines data ....................................................................................................... 45

12. Nepali Air Network Characteristics .................................................................. 50A. Cross sector flights ................................................................................................. 50

B. Cross border flights ................................................................................................ 51

C. Mountain flights .................................................................................................... 51

D. Adventure flights ................................................................................................... 51

E. Cargo .................................................................................................................... 51

F. Rural areas flights. Social destinations .................................................................... 52

13. Nepali Airports Net ......................................................................................... 55 Domestic Passenger Traffic per Airport .................................................................................. 56

14. Conclusions; Issues in the Nepali Air Network .................................................. 57A. Limited number of international agreements ......................................................... 58

B. Airlines license distribution – Domestic market overwhelmed ................................ 58

C. Lack of aircrafts ..................................................................................................... 58

D. Nepali air network weakly integrated .................................................................... 59

E. Necessary enhancement of safety in the air transport ............................................ 60

F. Bad situation of airport facilities ............................................................................ 60

G. Need of skilled manpower ..................................................................................... 60

H. Other issues .......................................................................................................... 60



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INDEX TABLES

Table 1.- Nepal Economics. April 2010. Source: WTO ................................................... 9

Table 2.- Air Traffic Rights in Nepal ............................................................................. 15

Table 3.- Entry Fees for Airline Licensing in Nepal ....................................................... 18

Table 4.- Airfares for domestic routes (private companies), adding fuel surcharge. Source: Nelpa .............................................................................................................. 19

Table 5.- Some airport charges for international flights in TIA. Source: AIP Nepal ....... 20

Table 6.- Some airport charges for domestic flights in TIA. Source: AIP Nepal ............ 21

Table 7.- PSC in TIA. Source: AIP Nepal ..................................................................... 22

Table 8.- Domestic Airlines in Nepal ............................................................................ 24

Table 9.- Domestic fleet characteristics in Nepal .......................................................... 25

Table 10.- Domestic airlines in TIA, historical data (2011) ............................................ 26

Table 11.- Domestic airlines passenger traffic (January-June 2012) ............................ 27

Table 12.- Tourist origin (2011) .................................................................................... 41

Table 13.- Tourist arrivals per month (2010-2011) ....................................................... 41

Table 14.- International Traffic in Nepal, 2010 .............................................................. 42

Table 15.- International Airlines operating in Nepal ...................................................... 45

Table 16.- International Air Network in Nepal ............................................................... 45

Table 17.- International airlines in TIA, historical data (2011) ....................................... 47

Table 18.- International airlines passenger market share (%) ...................................... 49

Table 19.- Domestic flight seats by region (Seat % in weekly schedule) ...................... 53

Table 20.- Operational airports in Nepal ....................................................................... 55

Table 21.- Charter airports in Nepal ............................................................................. 56

Table 22.- Passengers in major domestic airports ....................................................... 56



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INDEX FIGURES

Figure 1.- GDP per country worldwide, 2011. Source: IMF .......................................... 10

Figure 2.- Comparison of the state of development of Nepal. Source: World Economic Forum (WEF) ............................................................................................................... 11

Figure 3.- GDP (PPP) per capita, 1985-2010. Source: WEF ........................................ 11

Figure 4.- Distribution of population and type of activities by region, 2004. Source: Government of Nepal ................................................................................................... 12

Figure 5.- Natural reserves and tourist destinations in Nepal ....................................... 13

Figure 6.- Signatory countries of SAARC agreement ................................................... 14

Figure 7.- Historical data of domestic passenger traffic in Nepal .................................. 23

Figure 8.- Growth rates of domestic traffic within Nepal ............................................... 23

Figure 9.- Maximum range, with average load conditions, of a single engine Cessna Caravan 208 aircraft .................................................................................................... 25

Figure 10.- Domestic traffic in TIA in 2011, per company ............................................. 26

Figure 11.- Domestic passenger traffic market share (January-June 2012) ................. 27

Figure 12.- Tourist arrivals to Nepal in 2010 and 2011 ................................................. 42

Figure 13.- International traffic in Nepal, 2010 ............................................................. 43

Figure 14.- Historical international air passenger growth data ...................................... 44

Figure 15.- International air passenger growth data during last twenty years ............... 44

Figure 16.- International traffic in TIA in 2011, per air company ................................... 48

Figure 17.- International airlines passenger market share, 2011 (%) ........................... 49

Figure 18.- Declining of seats to remote areas (in percentages) .................................. 52



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1. INTRODUCTION

Extensive and efficient infrastructure is critical for ensuring the effective functioning of the economy, as it is an important factor determining the location of economic activity and the kinds of activities or sectors that can develop in a particular instance. Well-developed infrastructure reduces the effect of distance between regions, integrating the national market and connecting it at low cost to markets in other countries and regions. In addition, the quality and extensiveness of infrastructure networks significantly impact economic growth and reduce income inequalities and poverty in a variety of ways. A well-developed transport and communications infrastructure network is a prerequisite for the access of less-developed communities to core economic activities and services.

Due to the geographic location and topography of Nepal, air transport happens to be the most reliable mean of communication within and outside the country. Air transport in Nepal aspires to contribute to the promotion of tourism and trade through safe, economical, market-oriented, reliable and cost effective means, while ensuring flight safety and aviation security in par with international standards.

Keeping this aspiration in mind, the aim of the Civil Aviation Authority of Nepal (CAAN) is to develop the Nepali air transport system, with private participation, based on open sky policy, for safe, reliable, standard, easily available, sustainable and effective air transportation.

2. NEPAL ECONOMICS

Nepal was the first Least Developed Country (LDP) to join the World Trade Organization (WTO) through the full accession process, becoming the 147th member of this organization on April 23, 2004. But, still, economic performance has not resulted in the strong development Nepal needs, with real GDP growth rate averaging about 4% per year. According to WTO, there are some supply-side constraints that impede higher GDP growth rates, like notably energy shortages, poor infrastructure, and labor strikes, that Nepal’s Government should address. Being a landlocked country, trading costs are also particularly high in Nepal and this is an issue that will merit consideration.

Trade policy is an integral part of Nepal’s efforts to establish the conditions to reduce poverty and improve the living standards of the people. However, it appears to be a worsening balance of trade, due to falling participation of exports in its GDP and a reliance on a few export products and markets.

The country adopted the Customs Act and Regulation in 2007, simplifying customs procedures in Nepal, while progress made in trade facilitation has also improved customs clearance. There is still significant work to do in order to help exporters become more competitive.

According to the WTO Committee, Nepalese authorities may consider introducing further action or improvements in certain sectors, even when action is already being taken in several areas:

• Investment and business framework: Because of the high cost of doing business and the fact that certain sectors are still reserved for national investors, Nepal should further liberalize its investment framework and address issues of weak institutional capacity.



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• Export taxes: The imposition of export taxes discourages export of products and may not be the best way to achieve the Government’s objectives.

• Government procurement: There is a law on government procurement adopted in 2007, but still Nepal should elaborate its plans to further improve the implementation and monitoring of its public procurement legislation.

• Competition: A competition law was adopted in 2007, which established the Competition Promotion and Market Protection Board. However, it does not apply, for example, to exportation and businesses relating to cottage and small industries.

• Privatization: Nepal should promote the participation of the private sector in the development process so as to increase productivity and reduce the fiscal burden, following PPP formulas.

• Services: Further liberalization of services should improve the efficiency of the economy as a whole and the competitiveness of Nepalese exports, especially by reducing costs related to telecoms and transport. Tourism, a very promising sector given Nepal’s vast cultural and biological wealth, should also benefit from increased liberalization. But it still faces challenges posed by weak infrastructure, shortage of good quality accommodation and skilled manpower.

• Energy: Addressing energy shortages is crucial for Nepal to achieve rapid and sustained economic growth. Nepal should use its abundant hydropower resources to meet its increasing demand for electricity.

Table 1.- Nepal Economics. April 2010. Source: WTO

BASIC INDICATORS

Population (thousands, 2010) 29 959

Rank in world trade, 2010 Exports

GDP (million current US$, 2009) Imports

12 897

Merchandise

151 116

GDP (million current PPP US$, 2010)

35 917

excluding intra-EU trade 125 90 Current account balance (million US$, 2010) - 128

Commercial services

130 132

Trade per capita (US$, 2008-2010)

223

excluding intra-EU trade 104 106 Trade to GDP ratio (2007-2009)

48.4

Annual percentage change

2010

2005-2010 2009 2010

Real GDP (2005=100) 124

4 4 5

TRADE POLICY

WTO accession 23 April 2004 Contribution to WTO budget (%, 2012) 0.016

Trade Policy Review 13, 15 March 2012 Import duties collected (%, 2008-2010)

GPA accession -

in total tax revenue

22.1 Tariffs and duty free imports

to total imports

7.1

Tariff binding coverage (%)

99.4 Number of notifications to WTO and measures in force

MFN tariffs

Final bound

Applied 2010 Outstanding notifications in WTO Central Registry 21

Simple average of import duties

Goods RTAs - services EIAs notified to WTO 3 - 0 All goods

26.0 12.3

Anti-dumping (30 June 2011)

...

Agricultural goods (AOA) 41.4 14.1

Countervailing duties (30 June 2011)

... Non-agricultural goods 23.7 12.0

Safeguards (26 October 2011)

0

Non ad-valorem duties (% total tariff lines) 0.0 0.5

Number of disputes (complainant - defendant)

MFN duty free imports (%, 2009)

Requests for consultation 0 - 0 in agricultural goods (AOA) 0.0

Original panel / Appellate Body (AB) reports 0 - 0

in non-agricultural goods 6.5

Compliance panel / AB reports (Article 21.5 DSU) 0 - 0 Services sectors with GATS commitments 77

Arbitration awards (Article 22.6 DSU)

0 - 0



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MERCHANDISE TRADE

Value


2010

2005-2010 2009 2010

Merchandise exports, f.o.b. (million US$) 856

0 -12 4 Merchandise imports, c.i.f. (million US$) 5 133

18 22 17

2010

2010

Share in world total exports 0.01 Share in world total imports 0.03 Breakdown in economy's total exports Breakdown in economy's total imports

By main commodity group (ITS)

By main commodity group (ITS) Agricultural products

22.3 Agricultural products

13.0

Fuels and mining products

4.6 Fuels and mining products

18.3 Manufactures

70.0 Manufactures

54.9

By main destination

By main origin 1. India

65.5 1. India

57.0

2. European Union (27)

11.1 2. China

10.5 3. United States

6.3 3. United Arab Emirates

8.9

4. Bangladesh

5.5 4. European Union (27)

4.1 5. Bhutan

2.6 5. Indonesia

2.2

COMMERCIAL SERVICES TRADE

Value


2010

2005-2010 2009 2010

Commercial services exports (million US$) 584

17 22 -3 Commercial services imports (million US$) 846

15 -1 2

2010

2010

Share in world total exports 0.02 Share in world total imports 0.02

Breakdown in economy's total exports Breakdown in economy's total imports

By principal services item By principal services item

Transportation

6.8 Transportation

33.2 Travel

59.0 Travel

47.5

Other commercial services

34.2 Other commercial services

19.2

According to World Bank reports – “World Development Indicators database”, Nepal was ranked in the year 2010 in the 107th position among a list of 193 countries around the world, in terms of Gross Domestic Product (GDP). The annual percentage growth of its real GDP in 2011 was 3.5%, a slight decrease compared to that index in the previous year (4.6%).

Figure 1.- GDP per country worldwide, 2011. Source: IMF



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3. STAGE OF DEVELOPMENT The World Economic Forum (WEF) periodically performs evaluations of the global economics state of 142 countries around the World, comparing and ranking them by many different factors. These factors (or pillars) vary from basic requirements as institutions framework, infrastructures state, or health and primary education situation, to more innovative and sophisticate business areas.

The infrastructure factor has been divided into different aspects (quality of roads, quality of railroad infrastructure, etc.), and each factor has been scored on a 1–7 scale, with 7 being the most desirable outcome. As quality of air transport infrastructure regards, it has achieved a 3.4 mark, while the overall quality of infrastructures factor has been awarded with a 1.7 mark1

Figure 2.- Comparison of the state of development of Nepal. Source: World Economic Forum (WEF)

.

Figure below displays the evolution of GDP per capita at purchasing power parity (PPP) from 1985 through 2010 for the economy of Nepal (blue line). The black line plots the GDP-weighted average of GDP per capita of the group of economies to which Nepal belongs (“Developing Asia”, following IMF classification).

Figure 3.- GDP (PPP) per capita, 1985-2010. Source: WEF

In the next figure it is shown the distribution of population within Nepal, together with the main businesses in each district. It can be observed that the most inhabited areas are the Kathmandu Valley and those in the Terai zone.

1 All the detailed data can be studied in “The Global Competitiveness Report 2011-2012” (World Economic Forum).



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Figure 4.- Distribution of population and type of activities by region, 2004. Source: Government of Nepal



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4. TOURISM IN NEPAL

Tourism in Nepal is the largest industry and one of the key sources of foreign exchange coming Nepal. Tourism can be divided into four major business areas: cultural tourism, national parks and reserves, pilgrim places and adventure sports.

There are four UNESCO World Heritage Sites in Nepal, two of them cultural (Lumbini, and seven monuments of Kathmandu valley) and the other two natural (Chitwan and Sagarmatha National Parks). The most visited natural areas are Chitwan, Sagarmatha, Shivapuri and Langtang National Parks.

Cultural and natural tourism:

Figure 5.- Natural reserves and tourist destinations in Nepal

Nepal has several ancient pilgrimage sites: Baraha Chhetra, Halesi Mahadev, Janakpur, Pathibhara, Tengboche in East Nepal; Manakamana, Gorkha, Lumbini, Muktinath, Gosainkunda, Tansen, Kathmandu Valley in Central Nepal; and Swargadwari, Khaptad Ashram in West Nepal

Pilgrimage and religious destinations:

Pashupatinath, dedicated to Lord Shiva, is the holiest Hindu destination in Nepal. Lumbini, associated with the birth of Lord Buddha, is of immense archeological and religious importance and also a UNESCO Cultural Heritage Site.

Nepal is a unique destination for mountaineering, trekking, rafting, kayaking, canyoning and other adventure sports. It possesses eight out of ten highest mountains in the world. Trekking varies from high altitude treks to simple easy paced walks. There is a number of interesting options: the Annapurna and the Everest Region, the areas near Dhaulagiri, Lamjung, Jomsom and Mustang, in Western region, and the areas surrounding Jumla and Rara Lake, in Midwestern administrative division.

Adventure sports:

There are mountain flights which fly close to Mt. Everest and other peaks, providing a close-up view of the top of the world. Pokhara, the lake city of Nepal, provides endless opportunities for fishing, swimming, canoeing and boating along Phewa Lake. Air sport options like paragliding and flying in ultra-light planes are also available in Pokhara and other cities.



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5. MULTILATERAL AGREEMENTS OF NEPAL

The country of Nepal takes part in two multilateral agreements:

The South Asian Free Trade Area, SAFTA, is a multilateral agreement reached on 6th January 2004, which created a free trade area in Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. The seven governments signed a framework agreement to promote and sustain mutual trade and economic cooperation within the SAFTA region through the exchange of concessions, reducing customs duties of all traded goods to zero by the year 2016.

SAFTA (South Asian Free Trade Area):

The South Asian Association for Regional Cooperation, SAARC, is an organization of South Asian nations, founded in December 1985, dedicated to economic, technological, social, and cultural development, emphasizing collective self-reliance. Its eight members are Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka.

SAARC (South Asian Association for Regional Cooperation):

Its main objectives are: • to promote the welfare of the people of South Asia and to improve their quality of

life • to accelerate economic growth, social progress and cultural development in the

region and to provide all individuals the opportunity to live in dignity and to realize their full potential

• to promote and strengthen selective self-reliance among the countries of South Asia

• to contribute to mutual trust, understanding and appreciation of one another's problems

• to promote active collaboration and mutual assistance in the economic, social, cultural, technical and scientific fields

• to strengthen cooperation with other developing countries • to strengthen cooperation among themselves in international forums on matters

of common interest • to cooperate with international and regional organizations with similar aims and

purposes

Figure 6.- Signatory countries of SAARC agreement



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6. BILATERAL AGREEMENTS

The Government of Nepal has signed Bilateral Air Service Agreements and Memorandums of Understanding with 36 different countries since 1963 (see table below), despite the fact that until now 22 of them have still no direct flights to or from Nepal. That is because currently not all of the countries with an air service agreement have possibilities of tourism promotion to or from Nepal.

Provisions of the air service agreements provide for over 5.25 million seats per annum to and from Nepal. However, nowadays not even 45% of this capacity is being utilized by the operating airlines to Nepal (only 2.36 million seats per annum in total).

Winter schedule program of 28 airlines from 14 countries during October –March 2012 settled 47,057 seats per week.

Summer schedule prepared from March to September 2012 by 27 airlines produced 43,710 passenger seats, 890 cargo tons and an overall program of 255 flights per week.

Table 2.- Air Traffic Rights in Nepal

Bilateral Air Services Agreements with Foreign Countries India Singapore Bhutan

Pakistan Maldives Russian Federation Thailand Brunei Japan

Bangladesh Germany United Kingdom Sri Lanka Republic of Korea Qatar

China Hong Kong Malaysia Memorandums of Understanding

Myanmar Bahrain Kuwait France Oman UAE

Italy Macau Croatia Egypt Netherlands Israel

Luxembourg Saudi Arabia Philippines Austria Jordan Turkey

• The current bilateral agreement with India

• Similarly, the agreement with

establishes a seat capacity provision of 30,000 seats per week and unlimited air cargo flights between six metropolitan cities of India and Nepal. On January 2011 21 potential tourist destinations were opened for cross border flights with unlimited seats, a milestone in Nepalese civil aviation.

China provides for almost 10,000 seats per week to seven Chinese cities, with two beyond points to Osaka and Seoul. The air traffic to the sacred city of Lhasa is restricted to a maximum of 14 flights per week. Air services to Kailash area, in the Tibetan region, are being explored.



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7. AIR TRANSPORT POLICY ISSUES (CIVIL AVIATION POLICY 2006)

Nepal adopted a liberal sky policy in 1992, and since then it is gradually pursuing a totally open sky policy. The Government of Nepal, through the Ministry of Culture, Tourism and Civil Aviation (MoCTCA), has adopted Civil Aviation Policy 2006 aiming to achieve some important improvements in the Nepali air transport system. This Aviation Policy has established the following main goals:

Objectives of CAAN:

• To develop national aviation industry on a par with the worldwide industry

• To maintain the highest standards of flight safety and aviation security

• To offer healthy and competitive air services by attracting local and foreign private investors to:

o airlines operations management o airports construction, operation, and management o air transport services and facilities development, expansion and

operation

• To improve international and domestic airports with state-of-art facilities to fulfill air service requirements

• To strengthen training related to civil aviation, fulfilling the necessity of human resources

• To evolve Nepali civil aviation as a reliable service industry and as an appropriate mean of air recreation and adventure travel

• To continue with the current liberal sky policy, pursuing open sky policy gradually

• To initiate bilateral and multilateral air services agreements with countries with tourism prospects based on equality and reciprocity

• To simplify the process of approval for Nepalese airlines to ally or to share code with other international airlines groups

8. LICENSING AND JURIDICAL BACKGROUND

The Government of Nepal, through the Ministry of Culture, Tourism and Civil Aviation, has adopted Aviation Policy 2006 to regulate the licensing, operation and control of airline operations and other aviation related activities in Nepal. This Aviation Policy, regarding airline licensing, has made the following provisions:

The Government requires a formal application in a prescribed format together with a detailed feasibility study report covering financial, institutional, operational, technical analysis, a business plan and action plan within a prescribed time after the publication of the notification. Terms of Reference are sold for Rs 50,000, and the application must be accompanied by a refundable security deposit of Rs 5 million.

Licensing Procedures:

A five-member evaluation committee from the ministry evaluates and marks the competitive proposals or study reports received in a set marking system, and the highest marking proposal may be awarded with Airline Operating License.



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Within one year of obtaining the license, the airline may obtain the Air Operator Certificate from the CAAN by fulfilling the provisions of Air Operator Certificate Requirement (AOCR), issued by the Authority. After that, the air company has another year to start up flight operations.

The license to operate international air services from Nepal shall be issued against a bank guarantee and an undertaking to comply with regulations and laws relating to airline operations. The license issued has a validity of two years, renewable for subsequent period.

International route permission and flight capacities may be allocated as per the provisions of bilateral Air Services Agreement with the concerned country. Each of these routes attracts a royalty amount of Rs 500,000.

The Policy provides for issuing the permission to operate international air services and Air Operator Certificate based on the assessment and reliability of managerial, financial and technical aspects of the organization in such a manner that they can participate in a healthy and competitive manner. The provisions of routes, flight schedules, seat capacity and traffic rights will be distributed in a transparent manner keeping in view the provisions of Air Service Agreements.

International Airline Operation:

Domestic airlines having completed 5 years of successful operation may obtain license and Air Operator Certificate (AOC) for international flights, if they are found competent after an evaluation of their technical, financial and managerial competencies.

Foreign private investment is permitted to hold up to 80% of an international airline, up to 49% of domestic airlines and up to 95% of flight schools and repair and maintenance companies. Foreigners investing over US$ 5 million in an airline are provided with resident visa for people involved in the project and their dependent families.

Foreign Private Investment:

It is restricted the importation of non-pressurized aircrafts older than 20 years, pressurized aircrafts older than 15 years and those having completed 75% of economic design life or 45,000 pressurization cycles, whichever comes first. Flight permission for aircraft having completed over half of economic design life can be given only for the preparation of structural integrity program. The Government encourages purchasing or leasing aircrafts newer than 5 years old.

Flight Safety & Aircraft Age

Minimum paid up capital requirements for establishing airlines in Nepal have been fixed at Rs 500 million for international airlines, Rs 150 million for domestic airline, Rs 100 million for flying schools, Rs 50 million for maintenance and repair companies and Rs 10 million for aviation sports providers.

Minimum required capital:

The table on next page shows the different fees existing in Nepal for the establishment of new air companies. On that table, “paid up capital” refers to the amount of the company's capital funded by its shareholders; “deposit amount” is the security deposit required for every company beginning in the business; and the “license fees” are associated to every new planned route.



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Table 3.- Entry Fees for Airline Licensing in Nepal

Airline Types Paid up Capital Deposit amount License Fees

International Airlines Rs 500 million Rs 5 million Rs 50,000 per route Rs 25,000 per route Charter

Domestic Airlines Rs 150 million Rs 2 million Rs 30,000 per route Others Rs 20,000 per route Remote

Flight Schools Rs 100 million Rs 1 million Rs 0.5 million Aircraft Maintenance Rs 50 million Rs 1 million Rs 0.5 million Air Sports Rs 10 million Rs 0.5 million Rs 50,000

9. AIRLINES CLASSIFICATION

For licensing purposes, the Government of Nepal has categorized international airlines into three classes for passenger and another for cargo services:

• Class A: Long and medium haul services with a fleet of at least 2 wide-body aircrafts

• Class B: Short and medium haul operations. Maximum 3 hours non-stop flights and at least 2 airplanes in its fleet

• Class C: Short haul flights not exceeding 2.5 hours duration. This class includes upgrade of domestic airlines with more than 5 years of successful operation

• Class D: Pure freighter / cargo services

Talking about the other main traffic segment, the domestic aviation in Nepal can be divided into three categories:

• Pressurized turboprops • Non pressurized fixed wings, operating only in rural areas • Rotary wings

Each of these three categories has its own market segment, demand and supplies. Usually, helicopters do not fly to regions where the airline companies operate regular flights and vice versa. Also the management of their capacities is different. Hence, there are no reasons for the helicopter-service providers and aircraft operators to fight out.

10. AIRFARES AND TICKET PRICES

The Aviation Policy, following CAAN’s recommendations, fixes the airfares for every flight sector, specifying the upper and lower limits thereof. The Authority can intervene and take legal action against those airlines which, instead of operating the services at the rate fixed by the Government, collect excess charges from the passengers.

Air tariffs in trunk routes have decreased during the last years due to market competition. In those routes the prices are competitive, since this market segment has business possibilities and it is shared by many different companies. On the contrary, in the rural areas the domestic aviation prices are being sustained by CAAN’s control, by preventing airfare hike.

The Government monitors the prices of air tickets fixed by the airlines to control unhealthy competition. The companies submit their price list to CAAN while approving their flight schedules, in order to establish a common database and to improve transparency in the business.



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The table below lists that published list of air fares, per schedule flight, by type of passenger flying with a private air company. In the table, “resident pax” references to foreign travelers currently living in Nepal. The cells where there is not any number mean that no discount is applicable for foreign passengers in those routes.

Table 4.- Airfares for domestic routes (private companies), adding fuel surcharge. Source: Nelpa

Sector International

Pax (US$) National Pax (Rs)

Resident Pax (Rs)

Airlines Remarks

Bir / Tumlingtar 69+11 1595+1140 - AG

Kep / Dolpa 129+15 2425+1730 - TA

Kep / Jumla 98+16 2490+1775 - TA

Kep / Rara 145+16 2680+1915 - TA Effective from 5th Sept 2012

Kep / Simikot 145+21 3315+2370 - TA

Ktm / Bhadrapur 137+27 3235+3300 5660+3300 BA/YT/AG

Ktm / Bhairahawa 101+20 2540+2475 4445+2475 BA/YT/GA/AG

Ktm / Bharatpur 78+14 1435+1575 2510+1575 BA/YT

Ktm / Biratnagar 108+23 2930+2775 5125+2775 BA/YT/GA/AG

Ktm / Dhangadi 158+39 5155+4650 9020+4650 BA/YT AG : Agni Air

Ktm / Janakpur 86+15 1655+1800 2895+1800 BA/YT/AG BA : Buddha Air

Ktm / Kangeldanda 118+15 2230+1590 - TA GA : Guna Airlines

Ktm / Nepalgunj 137+29 3635+3525 6360+3525 BA/YT/AG ST : Sita Air

Ktm / Lamidanda 102+13 1915+1365 - TA TA : Tara Air

Ktm / Lukla 125+15 2295+1640 - TA/AG/ST YT : Yeti Airlines

Ktm / Manang 167+20 2810+2280 - TA

Ktm / Meghauly 114+13 1850+1320 - TA

Ktm / Mountain 140+42 4490+4500 4490+4500 BA/YT/GA/AG

Ktm / Phaplu 118+13 2045+1460 - TA/AG

Ktm / Pokhara 86+16 2010+2025 3535+2025 BA/YT/AG/GA Bir: Biratnagar

Ktm / Rajbiraj 101+19 2935+2095 - TA Kep: Nepalgunj

Ktm / Ramechhap 81+8 1400+1000 - TA Ktm: Kathmandu (TIA)

Ktm / Rumjatar 87+11 1720+1230 - TA Pkr: Pokhara

Ktm / Simara 72+12 1340+1350 2345+1350 BA/YT/GA Skh: Surkhet

Ktm / Surkhet 153+34 2810+3830 - YT/ST

Ktm / Taplejung 222+21 3445+2460 - TA

Ktm / Tumlingtar 100+17 2745+1960 - TA/AG

Pkr / Bharatpur 79+7 1340+955 - YT

Pkr / Jomsom 87+8 1340+955 - AG/TA/ST

Pkr / Manang 116+8 3300+1000 - TA

Skh / Dolpa 109+14 2055+1595 - TA

Skh / Jumla 133+12 1785+1275 - TA

Skh / Rara 100+13 1980+1415 - TA

Skh / Simikot 133+16 2515+1825 - TA

67 % adult fare will be applicable for child (Below 12 Yrs) 10 % adult fare will be applicable for infants (Below 02 Yrs) 20 % Service Charge and Fuel Surcharge will be applicable for all FOC tickets.



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In relation with the air taxes in Nepal, some private companies see these fees so high that represent a constraint for the companies to obtain enough profits. There are charges in relation with handling and other services provided by CAAN, and not only with landing, take-off and flight rights. High air taxes imply higher operation costs, and that usually means more expensive tickets. Since the average Nepali population has not a buoyant purchasing capacity, expensive fares could drive to a lower demand of domestic air transportation. If airfares drop off, that could signify a sharp in the number of domestic air passengers, and a quickly rise of the size market of domestic air traffic business.

Charges to flights operators

However, Government’s point is that landing and take-off costs in Nepal are not so expensive. To put forward some examples, landing charge in Kathmandu is Rs 330 for a Twin Otter, Rs 440 for a Beechcraft and Rs 165 for a helicopter, while in Simikot it is Rs 150 for a Twin Otter and Rs 75 for a helicopter.

This opinion is shared by some other companies. These companies think that, with the current airfares system, it can be possible to obtain benefits if the airlines have a thriving position and they are ready to adapt their structures and routes plans to passenger necessities and market demands.

All the charges for domestic and international flights operators in Nepal are as follows:

• International flights: Landing, parking, hangarage and navigational fees • Domestic flights: Landing, parking, hangarage and navigational fees • Passenger Service Charge (PSC) • Security service charge • Other specific charges (hangarage/housing of aircrafts, noise related, fire

fighting, rescue service, entrance to the terminal building, vehicle entry fees, meteorological charges)

In the following tables some aerodrome charges corresponding to Tribhuvan International Airport are listed. All the information about the civil air transport charges in the whole Nepali air network can be obtained from AIP NEPAL.

Table 5.- Some airport charges for international flights in TIA. Source: AIP Nepal

LANDING Aircraft's Weight (MTOW) Charge Basic Fees

Up to: 10,000 Kg Per 1,000 Kg US$ 1.25

10,000 - 25,000 Kg First 10,000 Kg US$ 12.25

After 10,000 Per 1,000 US$ 2.50

25,000 - 50,000 Kg First 25,000 Kg US$ 49.00

After 25,000 Per 1,000 US$ 3.75

50,000 - 75,000 Kg First 50,000 Kg US$ 140.50

After 50,000 Per 1,000 US$ 6.00

75,000 - 100,000 Kg First 75,000 Kg US$ 293.25

After 75,000 Per 1,000 US$ 7.35

Above 100,000 Kg First 100,000 Kg US$ 475.00

After 100,000 Per 1,000 US$ 8.55



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PARKING Aircraft's Weight (MTOW) Charge Basic Fees

Up to: 50,000 Kg Per 1,000 Kg US$ 1.00

50,000 - 100,000 Kg First 50,000 Kg US$ 49.00

After 50,000 Per 1,000 US$ 1.05


After 100,000 Per 1,000 US$ 1.95

AIR NAVIGATIONAL FACILITY CHARGE (Kathmandu FIR) Aircraft's Weight (MTOW) Charge Basic Fees

Up to: 25,000 Kg Flat US$ 45.90

25,000 - 49,999 Kg Flat US$ 76.50

50,000 - 74,999 Kg Flat US$ 152.75

Above 75,000 Kg Flat US$ 305.50

HANGARAGE / HOUSING OF AIRCRAFT Aircraft's Weight (MTOW) Charge Basic Fees

Up to: 50,000 Kg Per 1,000 Kg US$ 2.25

50,000 - 100,000 Kg First 50,000 Kg US$ 112.50

After 50,000 Per 1,000 US$ 3.40


After 100,000 Per 1,000 US$ 4.45

Table 6.- Some airport charges for domestic flights in TIA. Source: AIP Nepal

LANDING Aircraft's Weight (MTOW) Charge Basic Fees

Up to: 10,000 Kg Per 1,000 Kg Rs. 55

10,000 - 25,000 Kg First 10,000 Kg Rs. 550

After 10,000 Per 1,000 Rs. 110

25,000 - 50,000 Kg First 25,000 Kg Rs. 2,200

After 25,000 Per 1,000 Rs. 165

50,000 Kg - above First 50,000 Kg Rs. 6,325

After 50,000 Per 1,000 Rs. 220

PARKING Aircraft's Weight (MTOW) Charge Basic Fees

Up to: 50,000 Kg Per 1,000 Kg

Equivalent in Nepalese rupees to those corresponding to international flights

50,000 - 100,000 Kg First 50,000 Kg

After 50,000 Per 1,000

Above 100,000 Kg First 1,00,000 Kg

After 100,000 Per 1,000

AIR NAVIGATIONAL FACILITY CHARGE (Kathmandu FIR) Aircraft's Weight (MTOW) Charge Basic Fees

Up to: 25,000 Kg Flat

40% of the landing charges for domestic flights

25,000 - 49,999 Kg Flat

50,000 - 74,999 Kg Flat

Above 75,000 Kg Flat



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HANGARAGE / HOUSING OF AIRCRAFT Aircraft's Weight (MTOW) Charge Basic Fees

Up to: 40,000 Kg Per 1,000 Kg Rs. 150

40,000 - 100,000 Kg First 40,000 Kg Rs. 5,940

After 40,000 Per 1,000 Rs. 216

Above 100,000 Kg First 100,000 Kg Rs. 18,900

After 100,000 Per 1,000 Rs. 297

Table 7.- PSC in TIA. Source: AIP Nepal

PASSENGER SERVICE CHARGE

Type of passenger Charge

International passenger flying to the SAARC countries Rs. 700

International passenger flying to other countries Rs. 1,000

Domestic passenger Rs. 150

Passenger service charge is exempted for children not above 2 years old

For charter flights, this charge shall be levied on the basis of total seat capacity of the aircraft

• 13% VAT will be added to the commented charges.

Notes:

• No parking charges shall be levied for the first 3 hrs. If the period of parking exceeds 3 hrs, then each 3 hrs extra will make one parking unit. Charge will be 25% of one parking at a time, in aircrafts based on Kathmandu. Airplanes not based in Kathmandu will be charged as 50% of above, and charter will be charged like that.

• Charges in a different currency shall be calculated as per Nepal Rastra Bank's current rate of exchange.

• For each overflying, navigation charge will be payable. • An additional air navigation facilities charge shall be payable by each flight

operating at night or outside the published operational hours of the aerodrome. • Passenger Service Charge is required to every embarking passenger. • Security charges at the rate of 10% of the landing fees shall be imposed.

11. AIR NETWORK IN NEPAL

Currently, air transportation industry in Nepal is providing direct employment to around 4.000 people, and indirectly to many more.

On March 2012, 40 AOC's were valid in Nepal (16 fixed wing carriers, 8 helicopters operators and 16 sports/ paraglide agencies) and 13 airlines were actively in operation (2 international air companies, 6 fixed wing domestic carriers and 5 helicopter operators).

A.

Domestic passenger movement in Nepal has increased 2.4 times during the last 14 years, from 1.38 million in 1998 to 3.32 million in 2011. Average annual growth rate has been 7% during those 14 years, 8.63% during the last decade and 10.26% in the past 5 years.

Domestic Traffic



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Except for the absolute decline in air passengers in 2002 and 2006 due to internal disturbances, there have been a sustained growth annually up to 33.1% in 2009, which has been an exceptional year for domestic passenger growth due to increased direct services in Bhadrapur, Dhangadi, Bharatpur, Janakpur, Biratnagar and Pokhara, with additional ATR 42 and Jetstream J41 aircrafts joining the fleet that year. Four new fixed wing and two new helicopter airlines became operational in domestic air transport in 2009: Tara Airlines, Guna Airlines, Air Kasthamandap and Makalu Air, together with Mountain Helicopters and Muktinath Airlines. Air Kasthamandap was based in Surkhet and Nepalgunj, and it had license to operate charter flights with Pilatus PC-6 and Cessna aircrafts, but currently it is not operational.

Next figure shows the domestic traffic within Nepal during the last two decades. It can be observed the upward trend in the number of passengers using this mean of transportation.

Figure 7.- Historical data of domestic passenger traffic in Nepal

Figure 8.- Growth rates of domestic traffic within Nepal

In relation with the global airline’s market, domestic traffic share has dwindled to 9.5% of international passenger market in 2012 and further down to 7.48% in 2011.

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Passengers 1,38 1,72 1,78 1,82 1,58 1,69 2,00 2,47 2,04 2,06 2,28 3,04 3,27 3,32

-

0,50

1,00

1,50

2,00

2,50

3,00

3,50

Pass

enge

rs in

mill

ions

Domestic Air Passengers in Nepal

24,6

3,4 2,2

(13,1)

7,1

18,1 23,6

(17,3)

0,9

10,9

33,1

7,5 1,7

(20,0)

(10,0)

-

10,0

20,0

30,0

40,0

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Gro

wth

Rat

e in

%

Growth of Domestic Air Passengers in Nepal



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Currently within Nepal there are 13 different air companies operating domestic flights, with different traffic volumes, services and aims. Of these 13, eight of them are fixed wing operators and the others use helicopters (rotor wing) to carry out their operations.

Domestic airlines data

All these airlines are specialized in short distance flights, being Nepal Airlines, Buddha Air and Yeti Airlines the three main operators, in relation with the amount of flights and passenger traffic volume. Taking a look to the rotor wing carriers, it appears that the current main company is Shree Airlines.

State-owned Nepal Airlines is specially concentrated in the rural sector, whereas private airlines are mainly focused in trunk routes like Nepalgunj, Bhairahawa, Pokhara and Biratnagar. However, some private airlines like Tara Air, Sita Air and Agni Air are providing their services also to Karnali sector (the most uninhabited area of the country, in the northwest part of Midwestern region). The list of domestic airlines is shown on table below, with their IATA and OACI codes and fleet.

Table 8.- Domestic Airlines in Nepal

Domestic airlines Designator

Type of aircraft Pax

capacity IATA ICAO Air Dynasty --- --- Ecureil AS350 5

Agni Air --- --- BAe Jetstream 41 / Dornier 228-200 29 / 19

Buddha Air U4 BHA ATR42-300/ATR72-500/Beechcraft 1900D 46/50/19

Fishtail Air

Ecureil AS350 B3 / B2 / Bell 206B III 6 / 6 / 5

Guna Airlines --- --- Beechcraft 1900C 19

Goma Air --- --- Cessna CE208 9

Mountain Helicopters --- --- Ecureil AS350 B2 6

Nepal Airlines RA RNA DHC6-300 / B757-200 20 / 200

Shree Airlines --- --- Mi-17 24

Simrik Air --- --- BK-117B2 / Ecureil AS350 B3+ / B3e 9 / 5 / 6

Sita Air --- --- Dornier 228-200 19

Tara Air TA --- Dornier 228-200 / DHC6-300 19 / 20

Yeti Air 0Y NYT BAe Jetstream 41 29

Fixed Wing operators Helicopters operators Most of these airlines are based on the principal airport of the country, Tribhuvan

International Airport in Kathmandu. However, there are some of them, mainly the smallest ones, operating in different areas through the country (mostly based on two important airports in Midwestern Region, Surkhet and Nepalgunj).

As it has been said before, two of these companies travel to international destinations too2

2 The requirements, restrictions and regulations for an air company to achieve allowance to fly international routes have been exposed before.

. These only two airlines are Nepal Airlines, flying to five different destinations and countries, and Buddha Air, which links Kathmandu with Varanasi and soon Pokhara with Lucknow, both cities in India.



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Table 9.- Domestic fleet characteristics in Nepal

Type of aircraft Pax

capacity MTOW

(kg)

Landing / Take-Off Distance

(See Level, ISA) (m)

Cruising Speed (km/h)

Range (Average config)

(km)

Service Ceiling

(m)

ATR42-300 42 - 50 16,700 1,030 / 1,040 490 885 4,880

ATR72-500 64 - 74 22,500 1,067 / 1,290 511 1,650 6,400

B757-200 180 - 228 115,680 1,555 / 2,347 850 6,287 >10,000

BAe Jetstream 41 27 - 29 10,886 1,317 / 1,505 482 1,433 7,925

Beechcraft 1900C 19 7,530 735 / 1,666 487 1,165 7,620

Beechcraft 1900D 19 7,764 850 / 1,162 518 707 7,620

Bell 206B3 5 1,521 - 226 693 6,098

BK-117 B2 9 3,350 - 204 540 4,572

Cessna CE208 9 3,310 STOL: 495 / 626 340 1,758 7,620

DHC6-300 Twin Otter 18 - 20 5,670 STOL: 320 / 366 266 1,690 8,140

Dornier 228-200 19 5,680 STOL: 519 / 519 380 1,111 8,535

Ecureuil AS350 B2 6 2,250 - 226 657 4,600

Ecureuil AS350 B3 6 2,370 - 258 665 5,070

Mi-17 24 - 32 13,000 - 230 950 6,000

Note: Performance varies with changes in temperature, altitude and operational activity.

It has been analyzed the ranges of that fleet from the airports where domestic airlines are currently based on. After this analysis, it has been checked that, even without considering long-range B757 aircrafts, that fleet can cover the whole country network and a large area of the countries nearby. For example, next figure presents the maximum range, departing from TIA, corresponding to a Cessna CE208 Caravan with single PT6A-114A engine (source: Cessna company):

Figure 9.- Maximum range, with average load conditions, of a single engine Cessna Caravan 208 aircraft

Table and figures in the following pages present the air traffic data of domestic companies at TIA during the year 2011, in terms of flight movements, passenger and cargo transportation.



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Table 10.- Domestic airlines in TIA, historical data (2011)

Flight Movement Passengers Cargo (in Kg)

Dep. Arr. Total Dep. Arr. Total In Out Total

Air Dynasty 708 707 1.415 1.334 977 2.311 834 - 834

Agni Air 5.783 5.783 11.566 97.573 99.950 197.523 115.441 1.000.149 1.115.590

Buddha Air 11.527 11.526 23.053 346.091 344.932 691.023 130.782 594.515 725.297

Fishtail Air 764 767 1.531 1.644 1.169 2.813 8.874 - 8.874

Guna Airlines 3.374 3.375 6.749 47.173 48.369 95.542 1.720 1.627 3.347

Goma Air 4 2 6 - - - - - -

Mountain Helicopters 924 925 1.849 2.428 1.708 4.136 14.774 - 14.774

Nepal Airlines (NAC) 1.625 1.621 3.246 22.620 23.353 45.973 2.027 56.228 58.255

Shree Airlines 31 31 62 47 121 168 3.920 28.343 32.263

Simrik Air 264 264 528 322 800 1.122 5.280 2.439 7.719

Sita Air 912 911 1.823 7.399 8.144 15.543 33.169 563.754 596.923

Tara Air 3.377 3.377 6.754 38.539 39.702 78.241 20.018 840.908 860.926

Yeti Air 9.638 9.637 19.275 231.822 217.628 449.450 364.325 608.231 972.556

TOTAL 39.634 39.626 79.260 796.992 786.853 1.583.845 701.164 3.698.234 4.399.398

Note: In this table it is not shown the information about UN, NSBS (Nepal Army Air Service) and VIP flights, and also about the air companies currently not in operation.

Figure 10.- Domestic traffic in TIA in 2011, per company

0

2.000

4.000

6.000

8.000

10.000

12.000

14.000

Flight Movement

DEP ARR

0

50.000

100.000

150.000

200.000

250.000

300.000

350.000

400.000

Passengers

DEP ARR



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Figure 10.- Domestic traffic in TIA in 2011, per company (continuation)

Next table presents the air passenger traffic flying with domestic airlines during the first semester of years 2011 and 2012, together with the percentage growth between those years

Table 11.- Domestic airlines passenger traffic (January-June 2012)

2012 2011 Growth

Buddha Air 420,311 315,348 33% Yeti Airlines 229,292 224,739 2% Agni Air 78,256 96,754 -19% Tara Air 34,435 42,062 -18% Nepal Airlines 18,376 23,503 -22% Guna Airlines 9,925 43,728 -77% Sita Air 4,231 10,026 -58% Total 794,826 756,160 5%

Next figure shows the percentage part of each domestic company in the air passenger traffic during the first semester of the year 2012 (January-June). It can be observed the predominance of two companies (Buddha Air and Yeti Airlines) in this market segment.

Figure 11.- Domestic passenger traffic market share (January-June 2012)

0

200.000

400.000

600.000

800.000

1.000.000

1.200.000

Cargo (in kgs)

IN OUT

Passenger movement by airline (January-June 2012)

Buddha Air Yeti Airlines Agni Air Tara Air Nepal Airlines Guna Airlines Sita Air



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Fixed Wing Operators

Established in July 1958, Nepal Airlines (IATA: RA, ICAO: RNA) is the flag carrier airline of Nepal. Owned completely by the Government, its main operations base is the Tribhuvan International Airport in Kathmandu. Presently, the airline operates a fleet of four aircraft (two B757 for international routes and two DHC6 for domestic purposes), and flies to 18 destinations—five of which are international. Its scheduled flights link the most of the areas within the country, through two principal airports (Kathmandu and Nepalgunj).

NEPAL AIRLINES CORPORATION:

As it has been said, Nepal Airlines flies abroad to the capital cities of five different Asian countries (Hong Kong, Malaysia, Qatar, Thailand and Dubai). A new schedule route it is going to be implanted from TIA to King Fahd International Airport, in Dammam, Saudi Arabia. It is due to be established on 4th October, 2012.

In the next table the scheduled destinations of Nepal Airlines are listed, together with its current fleet. Following figures sketch out those scheduled routes.

Fleet Manufacturer / Model Series Engine Type Number Capacity Others DHC6-300 Twin Otter PT6A-27 2 20 pax STOL Boeing 757-200 RB211-535E4 2 200 pax -

Destinations and schedules INTERNATIONAL Effective from 25th March to 27th October 2012 Country City Code Flights / week Hong Kong Hong Kong HKG 3 Malaysia Kuala Lumpur KUL 6 Qatar Doha DOH 3 Saudi Arabia (from 4th October) Dammam DMM - Thailand Bangkok BKK 3 United Arab Emirates Dubai DXB 3 DOMESTIC Summer Schedule. April to June 2012 KATHMANDU BASED Flights / week NEPALGUNJ BASED Flights / week Bhojpur 3 Jumla 1 Chaurjhari 1

Dang 1 Kangeldanda 7 Lamidanda 3 Lukla 1 Phaplu 2 Pokhara 3 Rukum 1 Thamkharka 1



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A few large airlines like Cosmic and Necon have collapsed in Nepal during the last years. Similarly, Nepal Airlines Corporation (NAC) is in a dismal condition. There are some reasons that can explain these failures.

Cosmic and Necon collapsed because of internal reasons more than anything else. According to CAAN, the main reason for their collapse was a wrong market strategy. Similarly, it was also the result of repeatedly ignoring the directives of the regulatory authority.

The lack of aircrafts is the major challenge for Nepal Airlines. Due to financial problems the company can neither add aircrafts for domestic purposes nor procure them for international destinations. The two Boeing 757 aircrafts, the biggest airplanes that NAC currently possesses, are very old, and therefore NAC’s credibility has decreased in the market. But the company is strong in human resources and has air freedom rights to fly to lucrative international routes, so it is possible to regain its lost credibility purchasing new aircrafts.

Still, during the fiscal year 2011 NAC made a profit of Rs 120 million, while private domestic companies in total earned another Rs 120 million.



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(IATA: U4, ICAO: BHA) started operations in October 1997. It operates domestic services within Nepal, serving mainly large towns and cities, linking Kathmandu with nine domestic destinations. It also operates mountain flights “Everest Experience” from Kathmandu to the Langtang range. Due to company policies, its planes perform operations in only fully navigational aid equipped asphalt airports with more than 3,700 feet runway length.

BUDDHA AIR:

Together with those domestic airports, this company flights also to one international destination from TIA, Varanasi Airport in India, and they are planning to set up international operations between Pokhara and Lucknow (also in India).

Destinations and schedules INTERNATIONAL Flights based on 13-19 Jun 2012 Country City Code Flights / week India Varanasi VNS 4 DOMESTIC Summer Schedule effective from 27 April to 30 June 2012 KATHMANDU BASED

Everest Experience Dhangadi

Bhadrapur Janakpur Bhairahwa Nepalgunj Bharatpur Pokhara Biratnagar Simara

Fleet Manufacturer / Model Series Engine Type Number Capacity Others ATR42-300 PW121 3 46 pax - ATR72-500 PW127F 2 50 pax - ATR72-500 PW127F 1 50 pax In order (Sept. 2012) Beech Aircraft Corporation 1900D PT6A-67D 3 19 pax -



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Yeti Airlines Domestic Pvt. Ltd. (IATA: 0Y, ICAO: NYT) is an airline established in May 1998 and based in TIA. Yeti Airlines is the parent company of Tara Air. Together the two airlines form the largest domestic flight operator in Nepal, considering the number of routes and aircrafts. Yeti Airlines operates a fleet of seven aircraft and offers scheduled domestic flights to ten destinations. Yeti Airlines directly employs about 800 people, and it indirectly induces employment in many more.

YETI AIRLINES:

Yeti Airlines and Tara Air have the widest domestic flight network of any Nepali airline. The STOL aircrafts of Tara Air serve much of the isolated population of Nepal who live in remote areas, whilst the BAe Jetstreams of Yeti serve more substantial regional airports.

Yeti Airlines also operates a one-hour long Everest Express mountain flight daily from Kathmandu, and a large volume of essential supplies to many rural destinations. Its wide range of customers comes from trekkers or pleasure travelers, to mountain dwellers and Nepali corporate members.

Destinations and schedules DOMESTIC Effective from 01 April to 30 June, 2012 KATHMANDU BASED POKHARA BASED

Everest Express Janakpur Bharatpur

Bhadrapur Nepalgunj Bhairahawa Pokhara Bharatpur Simara Biratnagar Surkhet Dhangadi

Fleet Manufacturer / Model Series Engine Type Number Capacity Others BAe Jetstream 41 TPE331-14GR 7 29 pax -



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Tara Air Pvt. Ltd. is a subsidiary airline of Yeti Airlines. Formed in 2009 using aircraft from Yeti Airlines fleet, it is based in Tribhuvan International Airport in Kathmandu, with secondary hubs at Surkhet and Nepalgunj airports. The airline operates scheduled and charter STOL services, previously provided by Yeti Airlines Domestic. Its operations focus on serving remote and mountainous airports and airstrips.

TARA AIR:

Tara Air flies to 19 scheduled destinations, as well as it offers charter services. It operates a fleet of 7 aircraft which are especially suitable for flying into remote airports.

Destinations and schedules DOMESTIC

KATHMANDU BASED NEPALGUNJ BASED

SURKHET BASED

POKHARA BASED

Lamidanda Phaplu Dolpa Dolpa Jomsom Kangeldanda Ramechhap Jumla Jumla Manang Lukla Rumjatar Rara Rara

Manang Taplejung Simikot Simikot Meghauly Tumlingtar

Fleet Manufacturer / Model Series Engine Type Number Capacity Others Dornier 228-200 TPE331-5-252D 1 19 pax STOL / In-Storage Dornier 228-200 TPE331-5-252D 1 19 pax STOL DHC6-300 Twin Otter PT6A-27 5 20 pax STOL



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Agni Air Pvt. Ltd. is an airline based in Kathmandu airport which started operations in March 2006 to Lukla and Tumlingtar sectors. It operates scheduled flights, as well as mountain flights, and they offer also charter services under request.

AGNI AIR:

Destinations and schedules DOMESTIC KATHMANDU BASED POKHARA BASED BIRATNAGAR BASED Mountain flights Lukla Jomson Tumlingtar Bhadrapur Nepalgunj

Bhairahawa Phaplu Biratnagar Pokhara Janakpur Tumlingtar

Fleet Manufacturer / Model Series Engine Type Number Capacity Others BAe Jetstream 41 TPE331-14GR 2 29 pax - BAe Jetstream 41 TPE331-14GR 1 29 pax In-Storage Dornier 228-200 TPE331-5-252D 2 19 pax STOL



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Sita is an airline established in October 2000, but unable to operate until February 2003 due to political unrest in Nepal. The airline's main base is Tribhuvan International Airport, with hubs at Pokhara and Nepalgunj, and it operates domestic flights to 5 different scheduled destinations throughout Nepal, together with charter and cargo flights. Moreover, the company is planning to enter into the cross border & international market in nearly future.

SITA AIR:

Destinations and schedules

Charter / Cargo DOMESTIC

KATHMANDU BASED POKHARA BASED

NEPALGUNJ BASED Lukla Jomsom

Bahjang

Surkhet

Simikot

Jumla

Chaurjhari

DHANGADHI BASED

Bahjang

BIRATNAGAR BASED

Tumlingtar

Fleet Manufacturer / Model Series Engine Type Number Capacity Others Dornier 228-200 TPE331-5-252D 2 19 pax STOL Dornier 228-200 TPE331-5-252D 1 19 pax STOL / In-Storage



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Guna Airlines Pvt. Ltd., formed in 2009, is part of the Guna Group, a large Nepalese conglomerate of companies (related to jewellery, cinemas, food industry, mobiles, etc.). The airline, based in Tribhuvan International Airport in Kathmandu, currently operates scheduled flights to four different destinations from that airport, as well as mountain panoramic flights to the Himalayas.

GUNA AIRLINES:

The company safety policy is to operate only at airports with paved or asphalt runway.

Destinations and schedules DOMESTIC KATHMANDU BASED

Mountain Flights Pokhara

Bhairahawa Simara Biratnagar

Fleet Manufacturer / Model Series Engine Type Number Capacity Others Beech Aircraft Corporation Beech 1900C PT6A-65B 2 19 pax STOL Beech Aircraft Corporation Beech 1900C PT6A-67D 1 19 pax STOL



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At present, this small airline is focusing its operation in STOL airstrips of Mid- and Far- Western regions of Nepal, with its bases located in Surkhet and Nepalgunj and served with Two Cessna Grand Caravan 208. It offers charter and air taxi services between some small airports on demand.

GOMA AIR:

Destinations and schedules DOMESTIC NEPALGUNJ BASED

SURKHET BASED

Bahjang Mugu Bahjang Mugu

Bajura Rukum Bajura Nepalgunj Chaurjahari Simikot Chaurjahari Rukum Dolpa Surkhet Dolpa Simikot Jumla

Jumla

Fleet Manufacturer / Model Series Engine Type Number Capacity Others Cessna CE208 PT6A-114A 2 9 pax STOL



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The table below lists the rotor-wing carriers currently operating in Nepal. It is also shown their main business areas and activities, together with helicopter type and their capacity (excluding the pilot).

Rotor Wing Operators

Company Main Activities Fleet Number of vehicles

Passenger Capacity

Air Dynasty Heli Services

Mountain Flights (PACKAGES) Ecureuil AS 350 4 5 Search & Rescue

Charters

Photography - Filming Different Aerial Works

Fishtail Air

Mountain Flights (PACKAGES) Ecureuil, AS 350 B3 2 6 Search & Rescue Ecureuil, AS 350 B2 1 6 Charters Bell 206B III JetRanger 1 5 Air Sports

Different Aerial Works

Shree Airlines

Religious Tourism Mi-17 5 24 Charters

Medical Evacuation Search & Rescue Operations

Simrik Air

Mountain Flights (PACKAGES) BK-117B2 Kawasaki 2 9 Search & Rescue Ecureuil, AS 350 B3+ 1 5 Medical Evacuation Ecureuil, AS 350 B3e 1 (+1 soon) 6 Cargo flight operation

Photography - Filming Different Aerial Works

Mountain Helicopters

Search and Rescue Ecureuil, AS 350 B2 3 6 Pilgrimage Flight

Mountain Flights (PACKAGES) Different Aerial Works

Charters

Air Dynasty Heli Services Pvt. Ltd. was established in 1993. Its current fleet includes 4 Ecureuil AS 350 helicopters, certified to fly up to 20,000 feet AMSL. Each craft can normally accommodate 5 adult passengers subject to altitude and temperature at landing site.

AIR DYNASTY HELI SERVICES:

They offer also some package tours in form of mountain flights to different destinations (i.e.: the Everest region, pilgrimage flight to holy Muktinath, Langtang Valley, Lumbini -birth place of Lord Buddha-, etc.). “Aerial Sightseeing Tours” are customized to suit tourists who have very limited time and are unable to directly visit sites.

Another service provided by this company is Emergency Evacuation service. It is available to all tourists requiring urgent medical attention and care. Emergency Evacuation includes air transfer to Kathmandu and hospital transfer.



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Lastly, charter flights give the exclusive use of helicopter for special purpose and need. This could include rapid point-to-point transfer, executive transfers, aerial survey, photography and filming, site inspection, geological exploration, and general charter.

Fishtail Air Pvt. Ltd. is a helicopter charter company operating within Nepal, with its base in Kathmandu. The company was established in the year 1997 under the Air Operators Certificate issued by the Government of Nepal. Since its commencement, the company has been actively involved in operation throughout the country with occasional trans-border flights to Bhutan and India.

FISHTAIL AIR:

Fishtail Air operates flights for rescue, medical evacuation, corporate movement, project support, and expedition works. It also operates support flights for “Heli-Trekking”. In addition, its aerial sightseeing flights over the heritage and tourist spots are also quite popular.



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Shree Airlines (ICAO: SHO) is a domestic airline of Nepal that offers chartered helicopter services in the country. Shree Airlines is the largest operator of helicopters in the country.

SHREE AIRLINES:

Helicopter services operated by Shree Airlines in Nepal connect several tourist destinations in Nepal. Among the destinations of Shree Airlines are Muktinath, a popular pilgrimage destination, and Hilsa, which leads the way to other pilgrim destinations, Mount Kailash and Mansarovar. The airline runs direct charter services to these places.

The fleet of Shree Airlines consists of a large number of Mi-17 helicopters. These helicopters have a capacity of 24 people and cargo up to 4,000 Kilograms. Shree Airlines runs helicopters for both passengers and cargo.

Shree Airlines operates flights for the World Food Program and the Nepal Food Corporation. These flights deliver food to the hungry and needy in the hard-to-reach parts of Nepal. Shree Airlines also operates long term charter flights for the United Nations, in support of peacekeeping operations.

Established way back in 2001, Simrik Air provides charter solutions in different areas: business flights, tourist sightseeing packages, cargo transportation, medical evacuation, search and rescue operations, and many different aerial works (photography, filming, power line inspection, etc.).

SIMRIK AIR:

The company is successfully operating four choppers (one Ecureuil AS350B3+, one AS350B3e, and two Japan made BK-117 B2 Kawasaki), and its operation can cover the entire geography of the country.



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This company offers two distinct services, helicopter charter and air ambulance services. In relation with the charter options, they include aerial and survey works, such as photography & sightseeing. Some mountain flights are also offered, together with direct flights to various religious and pilgrimage places like Muktinath, Maratika Cave, Gosaikunda…

MOUNTAIN HELICOPTERS:



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B.

Nepal has enjoyed a sustained positive growth in the international visitor arrivals since mid 2009 and the trend continues nowadays.

International Traffic

Year 2011 has shown healthy signs in terms of international tourist arrivals, concluding with a positive balance of this segment. The figures reveal that annual visitor arrivals have increased by 22.1% to 735,932 compared to that of 2010.

The growth from the two major source markets, India and China, was fastest. This year, arrivals from these countries have been highly encouraging. India grew at an average of 28% whereas China did it at 63.1%.

Overall between January and December, with 60,115 additional visits, SAARC secured a share of 33.6%. The regions of the different tourist coming to Nepal are listed below:

Table 12.- Tourist origin (2011)

SAARC 33.6% Asia without SAARC 22.9% Europe 22.2% Oceania 2.9% America 7.2%

On month-by-month basis, October was the strongest of all with total 99,304 visitors, ahead of November and August.

The total number of tourists arriving to Nepal by plane is presented in the next table and figure. On them it can be observed the increase of this traffic in every month of year 2011, and a similar monthly pattern in 2010 and 2011.

Table 13.- Tourist arrivals per month (2010-2011)

Month 2010 2011 % Change January 33,645 42,599 26.60% February 49,264 56,339 14.40% March 63,058 67,530 7.10% April 45,509 59,724 31.20% May 32,542 46,184 41.90% June 33,263 46,015 38.30% July 38,991 42,304 8.50% August 54,672 71,338 30.50% September 54,848 61,109 11.40% October 79,130 99,304 25.50% November 67,537 83,430 23.50% December 50,408 60,056 19.10% Total 602,867 735,932 22.07%



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Figure 12.- Tourist arrivals to Nepal in 2010 and 2011

In other order of things, some international airlines are focusing their services towards the flow of Nepalese migrant workers leaving for overseas jobs, which is on the rise.

The mix of business, labor and ethnic traffic is becoming more balanced to attract more foreign airlines to Nepal, like Turkish Airlines, Sri Lankan Malaysian… in near future.

Table 14.- International Traffic in Nepal, 2010

COUNTRY TOTAL PAX TOTAL CARGO PAX (%) CARGO (%) SOUTH ASIA 1,071,718 1,381,764 39.70% 15.69%

BANGLADESH 155,469 301,433 5.76% 3.42% BHUTAN 23,943 62,603 0.89% 0.71% INDIA 852,532 719,088 31.58% 8.17% PAKISTAN 39,771 298,640 1.47% 3.39% SRI LANKA 3 0 0.00% 0.00%

MIDDLE EAST 1,047,639 3,662,982 38.80% 41.60% BAHRAIN 189,469 439,081 7.02% 4.99% ISRAEL 163 0 0.01% 0.00% OMAN 67,947 133,047 2.52% 1.51% QATAR 298,285 1,206,216 11.05% 13.70% UAE 491,775 1,884,639 18.22% 21.41%

SOUTH EAST ASIA 305,054 2,591,452 11.30% 29.43% CAMBODIA 10 0 0.00% 0.00% LAOS 20 0 0.00% 0.00% MALAYSIA 126,186 348,261 4.67% 3.96% MYANMAR 173 0 0.01% 0.00% THAILAND 178,665 2,243,191 6.62% 25.48%

EASTERN ASIA 275,423 1,168,217 10.20% 13.27% CHINA 238,687 911,248 8.84% 10.35% SOUTH KOREA 36,736 256,969 1.36% 2.92%

Total 2,699,834 8,804,414

0

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Figure 13.- International traffic in Nepal, 2010

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BAHRAIN BANGLADESH BHUTAN CAMBODIA

CHINA INDIA ISRAEL LAOS

MALAYSIA MYANMAR OMAN PAKISTAN

QATAR SOUTH KOREA SRI LANKA THAILAND

UAE

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Traffic per region

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Figure 14.- Historical international air passenger growth data

Figure 15.- International air passenger growth data during last twenty years

International passenger traffic has shown double-digit growth during the past 10 years (except in 2005, with 9.7%). 2010 saw a high growth of 20.2% over 2009.

The number of international air passenger in TIA, Nepal’s only international airport, has increased more than threefold during the recent decade to 2.7 million by 2011, and it is forecasted to cross 3.91 million by 2015.

Passenger traffic movements at TIA, including domestic and international flights, has crossed 4.28 million in 2011 (both arrival and departures) and it is forecasted to reach 5.85 million passengers by the year 2015 and 9.31 million by 2028.

Forecast of aircraft types likely to be used by airlines in domestic and international services is crucial to determine the optimum use of airport infrastructure and to avoid unnecessary congestion.

Choice of aircraft is influenced by traffic growth level, type of traffic, intensity of competition and airport infrastructures, among other factors. Dominance of Nepalese immigrant traffic in most high-density routes (Gulf region, Malaysia) implies price sensitiveness, attracting low cost carriers operating small jets with high density seating. Network carriers using larger jets (Singapore Airlines, i.e.) are giving space to low cost companies as Silk Air, offering more frequency of flights with smaller jets.

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International Air Passenger Growth in Nepal



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The list of international airlines frying to Nepal is shown on the table in the next page. On that it can be observed the aircraft model used by those companies and the passenger capacity that those airplanes offer. All these airlines limit their operations to Tribhuvan Airport, since it is the unique aerodrome currently considered as international in the country.

International airlines data

Table 15.- International Airlines operating in Nepal

International airlines Country

Designator Type of aircraft Pax capacity

(standard) IATA ICAO Air Arabia UAE G9 ABY A320 150 Air China China CA CCA A319 134 Air India India AI AIA A319/320/321 134/150/185 Buddha Air Nepal U4 BHA B190 19 Arkefly Netherlands OR TFL B738 162 Bahrain Air Bahrain 2B BAB A319/320 134/150 Biman Bangladesh Bangladesh BG BBC B737/A310 177/220 China Eastern China MU CES B737 177 China Southern China CZ CSN A319 134 Dragon Air Hong Kong KA HDA A333 295 Flydubai UAE FZ FDB B738 162 Etihad Airways UAE EY ETD A332/A320 253/150 Gulf Air Bahrain GF GFA A320/333/343 150/295/300 IndiGo India 6E IGO A320 150 Jet Airways India 9W JAI B738 162 Jet Konnect India S2 JLL B738 162 Kingfisher India IT KFR A320/321 150/185 Korean Air South Korea KE KAL B772 301 Nepal Airlines Nepal RA RNA B752 180 Oman Air Oman WY OMA B738 162 PIA Pakistan PK PIA A310 220 Qatar Airways Qatar QR QTR A319/320/332/333 134/150/253/295 RAK Airways UAE RT RKM A320 150 Druk Air Bhutan KB DRK A319/ATR42 134/42 SpiceJet India SG SEJ B738 162 Silk Air Singapour MI SLK A320 150 Thai Airways Thailand TG THA B772 301 United Airways Bhutan BD UBD MD 83 144

Next table and figure present the current scheduled routes in Nepal, showing the cities linked with direct flights from/to TIA, and the company which carry them out.

Table 16.- International Air Network in Nepal

Airport Air Company Country City IATA Name ICAO Type of Aircraft Bahrain Bahrain BAH Gulf Air GFA A320 / 343 / 333 Bahrain Air BAB A319 / 320 Bangladesh Dhaka DAC United Airways UBD MD 83 Biman Bangladesh BBC B737 / A310



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Airport Air Company Country City IATA Name ICAO Type of Aircraft Bhutan Paro PBH Druk Air DRK A319 / ATR42 China Lhasa LXA Air China CCA A319 Kunming KMG China Eastern CES B737 Chengdu CTU Air China CCA A319 Guangzhou CAN China Southern CSN A319 Hong Kong Hong Kong HKG Cathay Pacific CPA

Dragon Air HDA A333

India Delhi DEL IndiGo IGO A320 Jet Airways JAI B738 Jet Konnect JAI B738 Air India AIC A320 / 321 / 319 SpiceJet SEJ B738 Varanasi (Benaras) VNS Air India AIC A320 / 321 / 319 Mumbai (Bombay) BOM Jet Airways JAI B738 Kolkata (Calcutta) CCU Air India AIC A320 / 321 / 319 Netherlands Amsterdam AMS Arkefly TFL B738 Oman Muscat MCT Oman Air OMA B738 Pakistan Karachi KHI PIA PIA A310 Qatar Doha DOH Qatar Airways QTR A320 / 332/333/319 Singapore Singapore SIN Silk Air SLK A320 South Korea Seoul ICN Korean Air KAL B772 Thailand Bangkok BKK Thai Airways THA B772 United Ras Al-Khaimah RKT RAK Airways RKM A320 Arab Abu Dhabi AUH Etihad Airways ETD A332 / A320 Emirates Dubai DXB Flydubai FDB B738

Sharjah SHJ Air Arabia ABI A320



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The table below and the following figures present the air traffic data of international companies at TIA during the year 2011, in terms of flight movements, passenger and cargo transportation. Following that it is exposed the international traffic market share, in percentage, corresponding to each of these air companies.

Table 17.- International airlines in TIA, historical data (2011)

2011 FLIGHT MOVEMENT PASSENGERS

TRANSIT CARGO (in Kg)

DEP ARR TOTAL IN OUT TOTAL IN OUT TOTAL

ABY Air Arabia 724 724 1448 83847 103204 187051 4 52727 561604 614331

AIA Air India 905 905 1810 75600 76851 152451 4 67429 16120 83549

BAB Bahrain Air 190 190 380 14726 21553 36279 3 116 651 767

BBC Biman Bangladesh 359 359 718 39533 52725 92258 25 20095 188660 208755

BHA Buddha Air 157 157 314 3685 3533 7218 - 161 499 660

CCA Air China 238 238 476 20479 23010 43489 7 48179 266 48445

CES China Eastern 146 146 292 13224 13604 26828 6 20083 - 20083

CSN China Southern 270 270 540 23457 23401 46858 1 61882 153049 214931

DRK Druk Air 347 347 694 16218 14114 30332 39 97112 68791 165903

ETD Etihad Airways 364 364 728 64842 62283 127125 2 344574 698394 1042968

FDB Flydubai 621 621 1242 66073 86201 152274 10 57756 334420 392176

GFA Gulf Air 623 623 1246 73863 75703 149566 7 273954 349908 623862

GMG GMG Airlines 214 214 428 12573 24816 37389 4 70564 14946 85510

HDA Dragon Air 278 278 556 41543 41311 82854 1 393571 634323 1027894

IGO IndiGo 66 66 132 9270 9643 18913 - 6781 - 6781

JAI Jet Airways 1095 1096 2191 126780 145780 272560 67 397422 98961 496383

JLL Jet Konnect 366 366 732 51766 53321 105087 48 175346 7203 182549

KAL Korean Air 116 116 232 17809 18762 36571 30 235404 217990 453394

KFR Kingfisher 361 361 722 36130 40456 76586 18 85947 75583 161530

RNA Nepal Airlines 810 812 1622 101175 100866 202041 3 393100 320918 714018

OMA Oman Air 298 298 596 34412 34552 68964 3 24024 125940 149964

PIA PIA 153 153 306 20503 19165 39668 32 177201 221813 399014

QTR Qatar Airways 1187 1187 2374 138077 139719 277796 19 635776 1006586 1642362

SEJ SpiceJet 624 624 1248 91322 92272 183594 3 1897 - 1897

SLK Silk Air 205 205 410 24106 25808 49914 5 177184 116727 293911

TFL Arkefly 32 32 64 3535 3754 7289 4 90 - 90

THA Thai Airways 365 365 730 75035 79035 154070 95 391697 959884 1351581

UBD United Airways 120 120 240 6473 15801 22274 - 26579 2904 29483

Others 160 161 321 6459 6269 12728 - 254 73254 73508

TOTAL 11394 11398 22792 1292515 1407512 2700027 440 7236905 6249393 13486298



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Figure 16.- International traffic in TIA in 2011, per air company

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Table 18.- International airlines passenger market share (%)

Airlines 2009 2010 2011

1 Qatar 12.39 12.31 10.29 2 Gulf Air 11.77 7.34 5.54 3 Nepal Air 11.73 9.54 7.48 4 Air India 9.85 7.18 5.65 5 Thai Air 9.20 7.19 5.71 6 Jet Air 8.28 10.47 10.09 7 Air Arabia 6.48 6.40 6.93 8 Jet Lite 5.29 4.60 3.89 9 Etihad 3.85 4.78 4.71

10 Biman 3.49 4.35 3.42 11 PIA 2.87 1.95 1.47 12 Silk Air 2.58 2.17 1.85 13 Dragon Air 2.35 2.79 3.07 14 GMG Air 1.83 2.48 1.38 15 Korean 1.63 1.29 1.35 16 Bahrain Air 1.62 1.92 1.34 17 Air China 1.46 1.50 1.61 18 Druk Air 1.08 0.90 1.12 19 China South 1.08 0.96 1.74 20 China East 0.25 0.76 0.99 21 Arke Fly 0.13 0.27 0.27 22 Fly Dubai 0.09 0.00 0.00 23 Kingfisher - 3.34 5.64 24 United Air - 2.28 2.84 25 Spice Jet - 0.99 0.82 26 Oman Air - 0.93 6.80 27 Buddha Air - 0.63 2.55 28 Indigo Air - 0.05 0.27

Others 0.69 0.63 0.47

Figure 17.- International airlines passenger market share, 2011 (%)

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12. NEPALI AIR NETWORK CHARACTERISTICS

A.

Cross sector flights are heavily dependent on market demand. Between small cities there is not so much demand, or that demand is highly variable, so the possibilities to carry out such direct flights have to be carefully analyzed. Until now there have been some successful examples of cross sector scheduled operations (Biratnagar-Tumlingtar and Surkhet-Nepalgunj, with 18-seats capacity aircrafts), or Pokhara – Jumla, with slight success, but also some scheduled routes have been closed down (Biratnagar-Pokhara, for example). It is important to perform a study in advance to assure that flights in such kind of routes can be commercially viable.

Cross sector flights

Performing cross section flights can also help to solve the problem of air traffic congestion at Tribhuvan Airport.

On this basis, Government is thinking about some new feasible routes. An example is Pokhara-Dhorpatan as social connectivity flight. However, these two cities are separated by a 3-hours travel by road, and maybe the route would not bring so much traffic. Other possible national routes, already taken into consideration, are Bhairahawa-Pokhara and Biratnagar-Lukla.

Aviation Policy 2063 and National Aviation Policy 2050 established as a requirement for private airlines, willing to add more aircraft to their fleets, to keep their operation bases at regional hubs. But to do that, the airlines also require having their maintenance bases outside the Kathmandu Valley. If the regional hub airports had maintenance hangars, private airline companies could take that into consideration. But nowadays there is only a hangar for the maintenance of twin otter aircrafts at Nepalgunj airport. If some maintenance hangars are established at the most of the regional hub airports, it will be more possible for private companies to operate cross section flights.

Also, some private companies that have been studying hub-to-hub connecting flights are still reluctant to start with them before a steady political and economical situation.

Then, there are several possibilities to carry out successful cross sector flights, but it would be necessary to achieve some goals in advanced:

• To define properly the most suitable tourist destinations • To establish hubs facilities in some regional airports • To improve and modernize infrastructures in those airports

The most touristic airports, ready to become part of a cross-sector scheduled route, are:

• Dolpa • Jomsom • Jumla • Lukla • Manang • Meghauli

• Phaplu • Pokhara • Simikot • Bharatpur • Taplejung

Rara is another possible option to develop. Air operations flying there could be economically affordable because of the beauty of the area and the chance of becoming a popular tourist destination.



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B.

Cross border flights between Nepal and its neighbor countries (India, Bhutan, Bangladesh…) are challenging due to its low and variable demand.

Cross border flights

Some companies have tried to perform some cross border routes (for example, Katmandhu-Lucknow, or Katmandhu-Paro), but they were not very successful. Nowadays some studies have been fulfilled, and it seems that in the nearby future some companies will try again to conduct this kind of flights. For example, Buddha Air is planning to begin flying from Pokhara to India by September 2012. There is a problem with that flight, the military restricted area existing in the North of India. It is necessary to obtain Indian permissions to cross over it. Solved this bureaucratic barrier, this company plans to start operations with a Beechcraft 1900.

Biratnagar, Bhairahawa and Nepalgunj are linked with India for business reasons, so there are chances to exploit this market segment too.

There are many Buddhist tourists travelling to Lumbini, close to Bhairahawa, and that could offer another opportunity for air transportation development.

Some other possible international destinations for Nepalese companies could be Kuala Lumpur, Delhi, Dubai, Qatar or Bangkok.

Currently it is being analyzed the option of improving Bhairahawa and/or Pokhara to international airports. But they are close (only 20-25 NM each from the other), and if they are finally opened to international operations, that could imply a decrease in domestic flights.

C.

Mountain flights have become an increasingly desired option for tourist during the last years. Out of total international tourists visiting Nepal, around 12 per cent chooses this service, and there is scope for increasing that number.

Mountain flights

Currently there are several “panoramic” flights per day, departing from Kathmandu, flying over Lukla region (without stopping) and then coming back to Kathmandu.

D.

For the promotion of tourism in Nepal through aerial sports and entertainment activities, aviation sports (paragliding at most) are extended beyond Pokhara to Kathmandu, Bandipur and other touristic areas of Nepal, while there are ultra-light flights operated from Pokhara.

Adventure flights

E.

The main percentage of cargo arrives to Nepal through India, coming from Calcutta port by road transportation. This cargo is free of taxes, due to commercial agreements between India and Nepal.

Cargo

There is not so much exportation. Incoming air cargo like chemicals, electronics… arrives mostly in regular flights, not cargo flights. Nationwide, it is distributed mainly by road (except those rural areas where road transportation is not possible).



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F.

Domestic airlines in Nepal are required to schedule at least 40% of their services into the rural sector

Rural areas flights. Social destinations

3

Domestic flights to remote area airports have been declining over the years, from 21.4% of weekly flights in 1989/90 and 17.1% in 2001 to under 3% in 2011 and 2012, as the companies are increasingly interested in serving lucrative touristic routes.

, and maximum 60% in tourist sector.

Figure 18.- Declining of seats to remote areas (in percentages)

In summer schedule 2012, the seven domestic airlines operating schedule services offered about 50% of seats of their weekly flights in touristic routes, about 47% in trunk/Terai routes and only 2.98% of seats was destined to remote airports.

The Government is trying to introduce a procedure to encourage domestic airlines to operate in remote areas. It is known as Remote Air Service Fund. Through it, airlines flying to rural areas (considered as “social flights”) at rates lower than their operating costs would be regarded with a subsidy which supports their financial losses. This subsidy would be collected following a “cross system”, with extra fares raised in the other market segments economically feasible.

The subsidy fund is planned to be US$ 4 per foreign tourist in mountain flights, US$ 2 per tourist in other sectors, and 2% of the fare amount as regards helicopters charter operations. However, as this system is still in the process of being implemented, it is necessary the support and cooperation from the private airlines to carry it out properly.

There are more possible options to aid private companies to perform social flights. There could be different formulas for this funding, as in other countries like India. In that country there is an agreement with the Government that establish a minimum number of passengers per flight with a social destination. If there are not sufficient passengers, the Government pays the difference to the company. Government could provide also some sort of subsidy in aviation fuel or give customs and tax discounts for airlines operating in the rural sector.

3 For domestic aviation purposes, areas considered as “rural”, to and from which social flights would be established, are defined differently accordingly to several sources. For example, MoCTCA considers that they are the mountain areas of the North of the country and some places of the Far-Western region; for the AOAN, they are limited to the Karnali zone (Far- and Mid-Western region), etc.

21,4

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Declining of Seats to Remote Area



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The fact that airfares in remote areas are fixed by the government below the cost and the cost per seat is higher than in other routes due to high altitude terrain and unprepared facilities, is causing load penalty and many flight cancellations, discouraging airlines to commit their scarce resources to service remote area airports.

The table below presents the percentage distribution of weekly flights per kind of route (touristic route, trunk flight / to Terai areas, and rural/remote areas flights) during the last years, together with information about the number of operating airlines and the provision of seats. There it can be observed the small significance that flights to rural sector have had in the Nepali air network.

Table 19.- Domestic flight seats by region (Seat % in weekly schedule)

Period Touristic Trunk/Terai Remote Area Number of

Airlines Seats per

week (6 routes) (8 routes) (All Others) 1989/90 24.8% 53.8% 21.4% 8 18,362

May 2000 59.5% 30.7% 9.8% 11 23,222 May 2001 46.1% 36.8% 17.1% 11 18,056

January 2002 49.2% 43.3% 7.4% 9 18,528

July 2003 38.2% 53.9% 7.9% 9 13,821

July 2005 36.2% 58.5% 5.3% 8 21,661

October 2011 50.9% 46.8% 2.3% 7 30,617

July 2012 49.7% 47.4% 2.9% 7 24,282

There are some other reasons that can explain why private companies have been avoiding expanding its business to the rural destinations:

As it has been said, Government has established a requirement to the private airlines, to schedule at least 40% of their services into the social sector. But it is hardly possible to attain this measure due to the actual lack of aircrafts in the companies. Some airlines, following this requirement, have dedicated 70-80% of their fleet to do it. That implies a loss of vital resources that cannot be used in other routes commercially viable.

Small fleet’s size. Lack of aircrafts:

Use of single engine aircrafts could be an option, but its sustainability and feasibility is a matter of study for the high costs. On the other hand, multi-engine aircrafts are not available for less than 5 million US$, and that makes its use economically unviable in those routes.

The Airlines Operators’ Association Nepal (AOAN) point of view is that this 40% social requirement should be applied only when the national economic situation becomes more stable, and when more airplanes are summed up to the fleets.

Another big problem of the air transport to rural areas is the current state of airports infrastructures. Most of them are in really bad state, without a constant maintenance plan. Runways of many of them have not been blacktopped, and they can operate only some months during the year. Until now some efforts have been carried out to improve these facilities, and it seems that these works will continue in near future until most of the runways are paved and these airports could be promoted to all-season airports.

Airport infrastructure situation:

Those measures will indirectly imply that the current maintenance cost of the airlines will decrease.



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Normally, rural population has a low purchasing capacity and therefore cannot afford expensive tickets. That’s why a high percentage of the passengers flying to the rural sector are tourists or Government personnel. At present, non pressurized aircrafts operating rural areas are sustaining only because of the revenue generated from Lukla and Jomsom

Low passenger demand:

Furthermore, until now the population has not got totally the habit of choosing air transportation. For example, sometimes 18-seats aircrafts flying the scheduled direct route Kathmandu-Tumlingtar operate almost empty, even when air transport is cheaper than a road trip between those cities.

Therefore, there are some things that the Government could do whereby the private sector would come forward to operate rural sector flights on a bigger scale:

• To adapt monetary policies or subsidies, encouraging private airlines to operate more flights in those sectors.

• To improve infrastructures in rural airports like runways, communication systems, navigation gates, etc.

• To remove some taxes for flights catering to the remote airfields.

As an alternative to aviation, it has been developed a road transportation plan, where highways construction and improving has been taken into account, to facilitate transportation to the inhabitants of rural areas. But this plan could imply that, for example, if there are blacktopped roads to Lukla and Jomsom, private companies performing flights to those airports will close down their operations quickly.



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13. NEPALI AIRPORTS NET

• INTERNATIONAL AIRPORT: Tribhuvan International Airport (Kathmandu) • REGIONAL HUBS: Four regional hub airports: Biratnagar, Bhairahawa, Pokhara

and Nepalgunj • DOMESTIC: There are 29 additional domestic airports with scheduled flights

Table 20.- Operational airports in Nepal

In Operation Indicator (ICAO) Indicator (IATA)

1 BAJHANG VNBG BJH

2 BAJURA VNBR BJU

3 BHAIRAHAWA (Bhairawa) (Gautam Buda) VNBW BWA

4 BHARATPUR VNBP BHR

5 BHOJPUR VNBJ BHP

6 BIRATNAGAR VNVT BIR

7 CHANDRAGADHI (Bhadrapur) VNCG BDP

8 CHAURJHARI VNRK HRJ

9 DANG (Tribhuvannagar) VNDG DNP

10 DHANGADHI VNDH DHI

11 DOLPA (Juphal) VNDP DOP

12 JANAKPUR VNJP JKR

13 JOMSOM VNJS JMO

14 JUMLA VNJL JUM

15 KANGELDANDA (Solukhumbu) VNKL -

16 KATHMANDU (Tribhuvan) VNKT KTM

17 KHANIDANDA (Manamaya) VNKD -

18 LAMIDANDA VNLD LDN

19 LUKLA (Tenzing-Hillary) VNLK LUA

20 MANANG VNMA NGX

21 NEPALGUNJ (Nepalganj) VNNG KEP

22 PHAPLU VNPL PPL

23 POKHARA VNPK PKR

24 RAMECHHAP VNRC RHP

25 RARA (Mugu) (Talcha) VNRR -

26 RUMJATAR VNRT RUM

27 SALLEY (Rukum) VNSL RUK

28 SANFEBAGAR VNSR FEB

29 SIMARA VNSI SIF

30 SIMIKOT VNST IMK

31 SURKHET VNSK SKH

32 TAPLEJUNG VNTJ TPJ

33 THAMKHARKA (Khotang) VNTH -

34 TUMLINGTAR VNTR TMI



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There are four airports considered as charter

Table 21.- Charter airports in Nepal

:

Charter Indicator (ICAO) Indicator (IATA)

1 DHORPATAN (Baglung) VNDR -

2 LANGTANG VNLT LTG

3 MEGHAULI VNMG MEY

4 SYANGBOCHE VNSB SYH

Domestic airline passengers at Tribhuvan International Airport constitute little less than half of the total domestic passenger movements in Nepal. 10 of the 34 domestic airports with schedule flight services record over 90% of total domestic passenger movement, and they are ranked below by the volume of traffic they handled in 2011. In that table, figures in blue color represent estimated data.

Domestic Passenger Traffic per Airport

Table 22.- Passengers in major domestic airports

Major Airports 1998 2001 2006 2011

1 TIA - Domestic 670,076 871,818 882,717 1,583,845 2 Biratnagar 171,825 188,517 202,631 372,045 3 Pokhara 207,874 275,383 198,265 370,493 4 Chandragadhi 10,027 42,667 57,767 154,882 5 Nepalgunj 85,000 115,763 113,480 142,869 6 Bhairahawa 47,875 80,628 66,499 119,508 7 Lukla 40,020 45,453 61,992 93,292 8 Jomsom 34,440 25,682 33,749 65,527 9 Janakpur 10,762 24,234 50,909 62,113

10 Bharatpur 18304 22,416 26,179 51,126 11 Dhangadhi 6,356 2,104 10,123 37,726 12 Tumlingtar 6,658 29,834 25,000 27,982 13 Simara 14,412 48,442 82,933 70,745 14 Jumla 10,309 7,000 24,156 27,651 15 Lamidanda 4,476 6,000 14,000 20,350 16 Phaplu 4,833 6,500 15,000 18,587 17 Simikot 7,187 5,500 9,579 17,732 18 Dolpa 0 - 12,000 13,344 19 Bhojpur 0 2,000 13,000 12,000 20 Rara 0 - 649 11,555 21 Rumjatar 0 9,299 14,000 10,000 22 Surkhet 10,000 7,392 14,634 3,700

Others 18,766 - 110,675 36,821

Total 1,379,200 1,816,632 2,039,937 3,323,893

% of TIA (Int. traffic) 48.6% 48% 43.3% 47.6%



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14. CONCLUSIONS; ISSUES IN THE NEPALI AIR NETWORK

The continually growing demand of air transport services, both in the domestic and in the international market, gives an idea of the importance of this industry in the country’s economy. In terms of both business and pleasure flights, Nepali population is gradually adapting their habits and customs to use this market segment. Also the foreign travelers are increasingly flying to and from Nepal, due to the popular tourist destinations and the continued growth of Nepali economy and its business opportunities. Average annual growth rate of domestic air passenger movements have been 10.26% in the past 5 years, while the number of international arrivals by air transportation has been steadily superior those years, having increased a 22.1% from 2010 to 2011.

As far as international air traffic is concerned, the main areas of provenance of tourists are the neighbor Asian countries (India and China, mainly), and other countries from the Middle East (principally United Arab Emirates and Qatar). If only cargo flights from and to Nepal are considered, it has been shown a predominance of air traffic to Nepal from Thailand and the Middle East region (again from Qatar and UAE).

Private air companies in Nepal, together with the public enterprise Nepal Airlines Corporation (NAC), make an invaluable job offering air transport services in a healthy and competitive manner. Currently the domestic air transport is dominated by two main companies, Buddha Air and Yeti Airlines (together, they sustain more than 75% of domestic passenger air traffic), but there are many others that still have a wide market share. State-owned NAC is in a critical condition, but it continues performing successful flights to the rural areas of the country. Most of the national air carriers are based on Tribhuvan International Airport in Kathmandu, but other companies like Tara Air are performing flights based on other regional airports, like Nepalgunj.

As the helicopters traffic regards, this industry is well distributed between the five private companies that operate in Nepal, performing search & rescue operations, charter flights and many other aerial works.

Those facts reflect the current situation of air transport in Nepal. This industry is in a remarkable position to achieve the high standards common to this business around the world. It currently possesses the main pillars to acquire a highly developed situation, if some improvements are introduced.

But it seems undeniable that some issues shall be addressed to modernize the Nepali air transport network. According to the analyzed situation, after some consultations with relevant members of Nepalese airlines and organizations, and following advices of foreign experts, a number of measures can be proposed to alleviate the problems facing the air transport network in Nepal.

In the following pages some of these possible measures will be briefly exposed.



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A.

One of the main objectives of CAAN and the Government of Nepal is to promote the tourism in the country through a wisely integrated air transport network, as well as through other different means.

Limited number of international agreements

To achieve that, one of the first measures to accomplish would be to continue with the signature of Bilateral Air Service Agreements with other countries. Even when there are agreements with 36 different countries, it has been detected a lack of understandings with vital areas as USA, Canada, Australia, South and Central America, and many countries of the European Union.

Another reasonable measure is to promote international flights with those countries currently taking part of Bilateral Agreements but still not having scheduled air routes to Nepal (Germany, UK, Russia…).

B.

Nepal has a liberal sky policy since 1992. Under such scenario, it is compulsory to extend licenses to companies fulfilling the basic requirements. However, for a small country like Nepal, the number of airlines has probably reached a peak.

Airlines license distribution – Domestic market overwhelmed

The Nepali aviation market is limited as not all the people in Nepal can afford air travel. It is not possible an unlimited growth in the number of airlines operating on it. Moreover, rise in fuel prices, in aircrafts insurances and in the value of foreign currency can hit this sector, limiting the number of airlines which can attain benefits and remain into the business. In the pressurized turboprop segment, mainly destined to trunk routes, it does not seem realistic that more than two or three airlines can be sustained.

Also, the progress of domestic aviation sector is directly related to the economic progress of the country. The protracted political instability in the country has been certainly a major hindrance. It is reasonable to think that, once the country rationalizes its economical and political situation, domestic aviation business will tag along.

And also, some of the operating airlines present a clear obsolescence and a necessity of modernization in the equipments of their aircrafts. It would be necessary for the most of domestic airlines to renovate or to incorporate new and modern equipments in their fleet.

Due to all of the above, for a better management of domestic airlines industry it seems compulsory a more strictly control of the airlines by the Government. It should establish the minimum requirements for every company to enter into this business and to remain on it, to facilitate a healthy competition in a safety manner.

C.

Private sector companies have pointed out the lack of aircrafts as the basic challenge of the aviation industry in Nepal. The number of short take-off and landing aircrafts (STOL), suitable for domestic flights, is declining. These aircrafts are ideal for flying to rural destinations, but most of them have been destroyed in accidents. Single engine aircrafts are assisting in cargo and passenger transport to the rural areas, but they have their own limitations. These aircrafts are given permission to fly only as air taxi service or for chartered flights. These are meant for short distance flights, for around 45 minute long flights, and for a maximum of one-and-a-half hour flight.

Lack of aircrafts



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Nepal's civil aviation policy prevents from importing aircrafts that have exceeded 20-year life, for security reasons. There are also import tariffs for aircraft spare parts. Moreover, aircrafts insurers/reinsurers have placed Nepal in the danger zone for aviation due to the amount of accidents and a perception of insecurity, and therefore increased the insurance premium amount. Due to those reasons, it is not affordable for many private air companies to acquire additional aircrafts for their small fleets.

The Government should also consider if it is recommendable or not to waive taxes applied on the aeronautic elements importation. A 13% Value Added Tax (VAT) is applied on the import of any spare part, plus import duties and other extra service charges. 13% VAT is applied on aviation turbine fuel as well. All these taxes make a compounding effect, restricting the growth of the aviation industry.

In the opinion of the President of AOAN, there are some basic bottlenecks in purchasing new aircrafts:

• To bring in new aircrafts it is almost incompatible with making profits, when the operation costs are so high

• Some time ago, the Government offered a five-year tax holiday to the air companies, but that is not available at present

• The value added tax (VAT) on insurance premium has reached 13% while the taxation applied on aircraft lease has been increased an extra 10%

• International companies are reluctant to provide aircrafts to Nepali airlines because of the political instability and the slow economic activities in the country

Along with the increased number of airports, passenger traffic volume is also increasing and the existing fleet size is not sufficient to serve all those destinations. It is not unusual to suffer a shortage of flights in the rural sector during the tourist season (September – November).

However, and despite the previously commented problems for the acquisition of new aircrafts, sustaining a suddenly increased number of international passengers should not be a problem at the present time, in the short term.

D.

Apart of the previously commented matters, air routes network within the country shall be studied, trying to find new feasible routes which link all the areas of the country in an affordable and integrative way. For example, there are not enough routes between sectors, creating an excessive dependence on the constricted TIA in Kathmandu, where most of the domestic airlines are based.

Nepali air network weakly integrated

Also, because the cross border flights market segment is still not well covered, domestic air companies should be encouraged to perform international flights to the neighbor countries. Some companies have tried to link Kathmandu with other cities abroad (Lucknow, Paro…), but with slight success. It would be reasonable to carry out studies about the feasibility of setting up new international routes to different Nepali cities with business, religious or tourist possibilities.

Another question that shall be considered is the air services to rural remote areas, where it has been observed a lack of transportation services during some periods of the year. This shortage of flights may be caused, as stated previously, by the current small size of national fleet, and by the reluctance of the most of private companies to carry out this kind of operations.



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E.

Following the objectives established by CAAN, another issue to be addressed is to enhance flight safety and aviation security in Nepal in order to achieve the highest international standards in these matters. To do that, it will be necessary to fully accomplish all the minimum requirements proposed by international organisms as ICAO and many others (Eurocontrol, FAA…).

Necessary enhancement of safety in the air transport

F.

As it has been previously commented, most of the airports facilities ought to be restructured to comply with international ICAO standards, also, there is not a long term maintenance plan for airports. There are no such actuations until a replacement or a reparation necessity is detected.

Bad situation of airport facilities

The money to afford those investments can be obtained by two means. If the problem requires not so much money to be solved, then the airport affords it with its annual budget. If it is considerably expensive, the funding is asked to the CAAN; this organization evaluates the necessity and decides if they perform the payment or not.

G.

The air traffic rush in TIA has grown tremendously and the air traffic controllers must be appreciated for managing this rush brilliantly. Normally, TIA has the capacity to land 25 aircrafts in one hour, but it has been receiving up to 43 aircrafts

Need of skilled manpower

But normally staff qualification is not so good. In the terminal building of TIA, it is established an average goal of 19 seconds to process a departure passenger. This is never accomplished, and it takes normally several minutes to carry out the process. Also the baggage claim processes last more than acceptable.

There is also a dearth of experienced pilots. The license and experience of pilots is a really important matter in this sector for ensuring service quality.

H.

Some changes in the institutional and the legal framework could be implemented by the Government. That will require a critical evaluation of a committee to evaluate the possible pros and contras of new changes in these matters.

Other issues

Last but not least, discussions about the current tax system in the national airports could be carried out, trying to fix them in a similar way to those in neighbor countries.

The collaborative and enterprising intentions of the Government of Nepal, through the Civil Aviation Authority and Ministry of Culture, Tourism and Civil Aviation, will help to facilitate the resources, experience and institutional requirements to achieve those goals.

capacity development of civil aviation authority of nepal

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