Why aren't India's airlines built to last?

Companies aren't losing hope for one simple reason. Just about 6 per cent Indians travel by air today as against 20 per cent in China. This is reason enough for carriers to live another day...

Published: 12th July 2019 05:49 PM  |   Last Updated: 12th July 2019 08:09 PM   |  A+A-

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For representational purpose.

Express News Service

HYDERABAD: In two years, when the Indian civil aviation industry turns 110-years old, a disturbing reality may continue to haunt the sector. That our airlines aren't being built to last.

The sector's journey is marked by shutdowns that come in two-tiers - large airlines collapsing every 5-7 years - Air Sahara in 2007, Kingfisher Airlines in 2012, Jet Airways in 2019 -  and startup or budget carriers going belly up almost every year - Air Pegasus, Air Deccan, Air Costa to name some. 

But from an industry perspective everything is going only one way, upwards. Demand up, fleet size up, operational airports up, yet the sector is staring at a profitless growth. For instance, passenger air traffic shot up 10-fold since 2001 from 14 million to 140 million in 2018. The number of active airports doubled in past four years from 75 to 150, while aircraft fleet rose to over 600 from 400 in 2011. 

When the pie grows, everyone wins, but that's not happening for airline operators with the Center for Aviation (CAPA) pegging industry-wide losses at an alarming $1.7 billion in FY19. Why?

An assemblage of factors - a never-ending fare war, high fuel taxes, intense competition, rising operational expenses due to an unappetizing fleet mix, weak revenue per passenger, rupee and currency fluctuation, and excessive parking and landing charges - are collectively forcing airlines to burn more cash than they earn.

Take the grounded Jet Airways. During the 2018 December quarter, its revenue per available seat kilometer was Rs 4.39, while cost per available seat kilometer stood at Rs 5.16. Put another way, Jet lost 77 paise for every seat sold. And so are other carriers.

Even the sector's GOAT Indigo - the most profitable Indian airline - hasn't turned in its first quarterly loss since going public in 2015 last October. Mounting losses is leading to higher indebtedness of airlines, estimated in excess of Rs 65,000 crore in FY19, and weak revenue could make the sector the next belly flopper for banks. 

Unlike others, airline business demands high capex, but yields low profits. According to an industry insider, operators are content with just a 5-6 per cent margin, but even this has become a big ask of late.

Reasons aren't hard to fathom. Top among them is fuel prices taxed exorbitantly in India - 14 per cent central excise duty, and states' sales tax of as high as 30 per cent. As such, fuel expenses account for nearly 40 per cent of the total expenses for Indian carriers compared to 20 per cent for foreign carriers. The industry has a cap in hand, but the government is neither rationalizing the tax structure nor committing itself to bring jet fuel under GST anytime soon. 

Besides, civil aviation continues to be one of the most-regulated sectors, with the union government keeping a tight leash on almost everything from ground handling to route dispersal guidelines to bilateral treaties for international routes, preventing operators from cracking the market. As if this isn't enough, the Ministry of Civil Aviation's Udan initiative to promote regional connectivity is considered uneconomical as it imposes a price cap of Rs 2500 per ticket for 50 per cent of the total seats on a given route. 

But companies aren't losing hope for one simple reason. Just about 6 per cent Indians travel by air today as against 20 per cent in China. This is reason enough for carriers to live another day, despite losses that could eventually reduce them to a rump in the absence of a right policy push. 

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