Domestic Aviation Industry in Bangladesh is experiencing a dramatic growth due to factors like customer satisfaction, political unrest, traffic casualties on the highways and excessive waste of time. With major players like Biman, Novo Air and US-Bangla Airlines investing heavily and new entrants coming in. Read on to see how the sector is taking off!!!

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Market Insight: Domestic Aviation Industry in Bangladesh
Air Travel: Safety over Price?
Political disruption is a direct barrier to development in Bangladesh. For over a month,
transportation has been a nightmare given that there are continuous blockades and strikes.
This has a direct impact on freight costs, delivery time lag, expense due to damaged inventory
and the likes. Since roads and rivers are clearly unsafe given the political unrest, the only
reliable means of transportation left is air travel. While there is supposed to be a direct positive
correlation between the degree of political turmoil and the number of passengers in domestic
flights, the reality is somewhat more complex owing to demand structures, legal complications,
external competition, oil prices etc. This article aims to analyze these issues and provide
insights on the domestic aviation industry.
Market Overview:
There are currently five major companies in the aviation industry: Biman Bangladesh, United
Airways, Regent Airways, Novo Air, and US-Bangla Airlines.
Biman Bangladesh Airlines, established in 1972, had a good number of domestic flights during
its inception, but now mainly focuses on international flights with over 18 international

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destinations spread out throughout Asia and Europe while private sector players like United
and Regent Airways both have been strongly focusing on domestic travel. But things have
changed as now they have an increasing interest in international flights as well. Both of these
airlines travel to destinations such as Kuala Lumpur, Bangkok, Kolkata and Singapore. More
interestingly, Novo Air and US-Bangla Airways – two private sector players focus completely on
the domestic arena i.e., they fly regularly to the usual destinations such as Chittagong, Cox’s
Bazaar, Sylhet, and Jessore.
Fleet Status:
Taking a closer look at the carriers used by the respective companies, we can see a clear
distinction between airlines which offer international flights and those that do not. Biman and
United have high end carriers such as Boeing 777 and A 310s in contrast with the low capacity
carriers such as Dash 8 Q400. High end carriers are only affordable by the top players of the
market, since they are much more expensive. So, there is a general tendency for a company to
start with local destinations and eventually move to international flights after acquiring the
necessary revenue and brand image. There are also legal constraints put forth by CAAB and
International Air Transport Association (IATA) that restricts the license for international flights
based on factors like quality and quantity of carriers, number of passengers as well as staffs.
Demand for Domestic Flight
According to the Civil Aviation Authority, Bangladesh (CAAB), the combined annual market size
of 2014 was worth USD 440 million, with 5.8 million passengers and 2.3 lakh tons of cargo.

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As we can observe, there is a positive correlation of the passenger growth rate with the GDP
growth rate. This is because of three broad reasons:
 A higher GDP equates to higher purchasing power, which incentivizes many to choose
air travel within the country as an alternative to trains and buses.
 Given that the business environment is growing quite rapidly, saving time is quite
crucial. Airplanes save at least 70% of a business executive’s travel time.
 A higher GDP often means higher FDI. Foreign nationals tend to choose air travel over
other means of transport.
Not only the flourishing economy, there is a myriad of other reasons behind this growth. For
example, political stability has a direct impact on demand. The growth rate in 2012 was greater
than that of 2013, possibly because 2012 was a much more politically turbulent year. 2015 is
also expected to observe a sharp increase in domestic flights due to the regularity of strikes and
blockades.
Another factor is the increase in government spending in mega projects such as Padma Bridge,
Rooppur nuclear power plant and Rampal power plant. Diversifying infrastructural
development beyond the capital city requires more inter-city travel, where airline seems like
the best option. Currently, the highest traffic is in the Dhaka-Chittagong route, followed by the
Dhaka-Jessore route.

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Domestic aviation market is expanding every year. Epic Air, a new entrant, plans on
commencing operations this year. Biman Bangladesh plans on re-introducing its domestic
flights this year and has acquired Dash-8 Q400s on a dry lease contract from Egypt. This shows
that the market potential is most definitely increasing, despite international flights being more
profitable.
International Flights:
Other than Bangladesh Biman, private sector companies such as Regent and United Airways
have already operating in international routes and Novo air is about to follow suit. This is
primarily because of the much greater earning potential. For example, the shift made by Regent
Airways led to a 35% drop in domestic customers, but a four-fold increase in the total number
of passengers.
Furthermore, there is an increasing number of emigrants leaving to work abroad (mainly in the
UK and the Gulf). Lastly, given that customers directly respond to price, the cheaper fare
offered by local companies on international flights is a clear selling point. So far, there is no
threat from foreign companies in the domestic market. However, given that there is an
increasing demand for domestic flights, there is a possibility of the intrusion of foreign airlines.

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Impact of Oil Price Plunge on the Air Fare – A Confusion
Fuel is one of the most substantial costs incurred by an aviation company. The recent drop in oil
prices, however, showed no significant change in air fares in Bangladesh – at both domestic and
international level. This is because of two reasons:
1. Companies generally hedge out fuel in advance. So the price change will take time to
come into effect.
2. The government artificially fixes the price, and companies that purchase fuel from the
government observe no difference.
The way ahead:
On the offset, it may seem that the demand for domestic flights might decline once the political
crisis subsides. But the reality, as promised, is more complex. With the change in demand
structure, increase in GDP, expansion of the economy and an increasing need for fast
transportation, the growth curve will most likely continue pointing upwards. It will not be
surprising if Epic Air is not the only new entrant in the near future.
Co-author:
Sazzad Hossain, AVP and Taosif Amin Khan, Junior Associate at LightCastle Partners