Nepal’s rate of inflation, the price of everything from salt to gold have been at all time highs. The country is witnessing a decline in manufacturing at home, and a growing dependency on imports.
Nepal’s import bill for the last fiscal year reached a record Rs150 billion, of which more than 60% was for petroleum products. In contrast, the country’s total export earnings last year was only Rs21 billion.
There might be more socio-economic factors driving inflation, which is expected to hit 6% this year, and in time, I am sure economists will find out what is driving it.
That being said, while everything has become more expensive, domestic airfares in Nepal have become cheaper – not just in real terms but in actual rupee amount.
Back in 1999, one US dollar had an official exchange rate of Rs68. The USD-NPR rate today is Rs120 per dollar. There is now such a shortage of hard currency in the exchequer that the government has reduced the $1,500 Nepalis were allowed to exchange for travel abroad.
Similarly, the price of gold has skyrocketed from Rs7,587 per 11.7 grams (1 tola) to Rs90,000.
Aviation Turbine Fuel (ATF) used to be Rs30 per litre thirty years ago. It is now at Rs86 per litre. Even inflation has increased by 340% in that period.
The main cost factor in Nepal’s civil aviation is the price of ATF. Most international airlines make sure they arrive in Kathmandu with enough fuel to fly back to their home airports because the cost of refueling in Kathmandu is the highest in the world. For domestic airlines, aviation fuel makes up 40% of the operating cost.
The fortunes of domestic airlines are also affected by turbulence in the price of aviation fuel. But since nearly everything used by domestic airlines — from the airframe itself to spare parts and equipment and fuel – have to be imported, their costs have also shot up because of the appreciation of the US dollar.
Twenty-three years ago, the salary of a branch officer at an airline was at most Rs4,500. A mere Rs100,000 could buy a ropani (500sq m) of land in Kathmandu. But in that time, the cost of an air ticket to Biratnagar, Nepalganj, Pokhara and Bhairawa is only Rs1,200 more than it used to be in the late 1990s.
One might question why. The main reason is that we are now using larger turboprop aircraft which are more fuel efficient and cost less per passenger mile to operate.
At present, Nepal’s domestic airlines fly more than two dozen aircraft with 40 seats or more – with Buddha Air operating more than half the fleet.
Buddha Air pioneered the shift to larger turboprops in 2008 with the introduction of ATR42s, and later added the larger ATR72s. Such a large fleet requires state of the art maintenance, and we have established our own hangar with tools and spare parts, all of which are also very important in reducing operating costs.
Today, Buddha Air serves 2.5 million passengers annually and we are planning to add more planes in the short takeoff and landing (STOL) category, after which our annual passenger capacity is estimated to reach 3.5 million.
Rains, floods and landslides have damaged Nepal’s fragile road infrastructure, and the trend will continue as the Himalaya experiences more extreme weather events due to climate change. Similarly, traffic jams clog up the highways and it is taking longer for intercity travel within Nepal.
Nepalis now have a safer, but affordable and accessible alternative mode of transport. The good news is that more Nepalis all over the country can now commute by air not just from Kathmandu but also between cities like Nepalganj-Pokhara, Simara-Pokhara. Buddha Air alone serves more than 8,000 domestic passengers a day in 140 flights.
As the country recovers from the pandemic, air travel has now become the first choice of Nepalis from all levels and sections of society, and this is primarily because while everything else has become much more expensive in the past 30 years, the cost of air travel has not. We would not have achieved this success if we had restricted our service to a limited number of aircraft and fewer seats.
The global tourism industry is now also picking up after two years and passengers are increasingly confident about the health protocols on board. Nepal’s domestic airlines are poised for another takeoff, boosting the prospect of Nepal’s economic revival.
Birendra B Basnet is Managing Director of Buddha Air.