Why have India's airlines hit turbulence?

 
Air India landing in Mumbai The government has approved a debt restructuring plan to save Air India.

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India's aviation industry is in deep trouble.

On Thursday, Aviation Minister Ajit Singh told the parliament that the airlines are expected to report a combined loss of nearly $2bn for the last financial year. Independent analysts peg last fiscal's losses at $2.5bn.

All airlines - there are six main operators - barring budget carrier Indigo are in the red and further losses are expected in 2011-12, he said.

India's biggest airlines - the private Jet and the the national carrier Air India - are struggling.

Private airline Kingfisher has shut down overseas operations, pruned domestic flights, downsized and is desperately hunting for funds. Things are so bad that the government is mulling a proposal to allow foreign airlines to buy stakes in India's airlines to help revive them. But this is not expected to happen soon.

What is wrong with one of the world's fastest growing aviation markets? Aviation and telecoms are held up as leading examples of industries which have bloomed after the unshackling of India's economy.

Serious challenges

But in less than eight years the boom is beginning to look like a bust. What went wrong?

Total losses since 2004 are estimated to be around $8bn, and the airlines are groaning under accumulated debts of up to $18bn, according to independent analysts.

Most believe the industry has been hit by steep fuel prices, punishing taxes, tough competition and the general economic slowdown. Airport charges are also on the upswing - Delhi airport has already seen a fat rise and Calcutta, Chennai and Mumbai are expected to follow suit - and flying is going to become more expensive.

Consider aviation fuel, which comprises more than half of the operating cost of an airline.

Indigo airlines Indigo is the only profit making airline

In early March, global aviation analyst Centre for Asia Pacific Aviation (Capa) calculated that a kilolitre of aviation fuel cost 67,000 rupees ($1,247) in Mumbai, compared to 44,000 rupees ($819) in Dubai and 43,400 rupees ($808) in Singapore. India imports the bulk of its oil, so with the rupee falling, it is paying more for it. On top of that, oil is also also heavily taxed domestically.

The situation is not likely to improve in the near future unless oil prices drop, the rupee strengthens and taxes are cut. "There are serious fiscal challenges linked to the slowing economy and punitive taxes, but there are equally serious structural issues with industry and the infrastructure," Kapil Kaul, chief of Capa India told me.

The structural weaknesses extend from quality of air navigation services to adequate inspectors to the way the private airlines are run.

Mr Kaul says the quality of air navigation services needs to be upgraded: airports like Delhi, he says, can potentially handle 90 landings and takeoffs every hour, but do between 50-60. Mumbai airport manages some 30-35 landings and take offs every hour on a single runway. Gatwick manages almost double the number on a single runway.

"Navigation systems are marked by low productivity. There is not enough training of human resources," he says.

Poor management

Analysts says most of the airlines have expanded recklessly and managed their money poorly.

They point to Indigo, the only airline in black, which runs a low-profile, no-frills, on-time operation and has an extensive network as an example of how the business should be run in these difficult times.

Kingfisher planes Debt-ridden Kingfisher has had to scale back operations

To add to this, many analysts believe, India has weak and understaffed regulatory agencies, and with an economy which aspires to attract billions of dollars in investment, still does not have a civil aviation policy. There is no evidence of any compromise on safety, but the understaffed safety regulator is a growing concern.

India has more than 400 aircraft - flying on both domestic and international routes - and some 3,500 pilots. More than 60 million Indians flew domestically in 2011, and some 37 million flew internationally. Passenger traffic grew by a healthy 17% last year, though it has slowed down a bit since.

On the face of it, the industry should be booming. Instead, it seems to have become a victim of a slowing economy, shoddy fiscal management, punitive taxes, poor management and the hubris of the operators.

 
Soutik Biswas Article written by Soutik Biswas Soutik Biswas Delhi correspondent

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  • rate this
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    Comment number 17.

    Modi will be the most popular PM in the history of India. mark my words.

  • rate this
    +1

    Comment number 16.

    Air India or Poor India? Air India will give you hearts ache! At the end of your flight with children you land in tears. This is my family experience.
    British and other international carrier got direct connection to all over India,but not Air India. They are collaborating with foreign air lines to rob hard working people of Kerala!

  • rate this
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    Comment number 15.

    I want to travel around southern India but have not because of poor route coverage and frequency, and, away from hub airports, high prices. Indigo has improved matters but not enough. I can only think that poverty limits the size of the market. The dire state of surface transport gives airlines a huge competitive edge. Any airline that can fail under those conditions really has problems.

  • rate this
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    Comment number 14.

    Kingfisher,
    is basically headed by an obese entrepreneur, who thinks it is wise to invest all his resources, in the most obvious cliche of the country, than actually pay salaries to his employees.
    The Indian gov did the right thing in showing this man, the exit, when he rather awkwardly, and blithely, asked the government for a bailout, which does not help this man's poor employees, of course.

  • rate this
    +1

    Comment number 13.

    Flew Indigo last October. They are simply excellent, and though they stick to the basics, those basics are done brilliantly. Good web site and booking system, reasonable (and realistic) fares, spotlessly clean aircraft, and every member of staff from the toilet cleaner to the onboard crew race frantically to ensure their schedule is on time (with exceptions for no one). The rest take note!

 

Comments 5 of 17

 

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