Reason Why India’s Airlines Continue To Struggle With Profitability

Reason Why India’s Airlines Continue To Struggle With Profitability

The fact is that the aviation industry has suffered because of a variety of mistakes made by both the private sector and, most importantly, the government.

Introduction

Anyone perplexed about how India’s economy continues to expand quickly while being unprosperous would do well to consider the status of the country’s airlines. India has had tremendous passenger growth over the previous four years, with a 15–20% annual rise in the number of flights flown.

This year’s demand rise will probably be the largest ever recorded. However, the sector as a whole has not profited. Almost every airline in India is having trouble. Think of Jet Airways Ltd., the country’s first private airline. It has now seen losses for three quarters in a row, and its total current liabilities have reached $2.2 billion.

In addition to having difficulty paying its pilots, the airline hasn’t made lease payments to the owners of its leased aircraft. It has even had trouble paying the airport fees. SpiceJet Ltd., a different airline, has been losing money for the past two quarters and is also putting off making payments to the Airports Authority of India.

And even IndiGo, the industry leader and highly regarded company, just reported its first quarterly loss since going public in 2015.

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India’s Challenging Market Conditions

The recent sector upheaval is not unique to the Indian aviation business. However, several circumstances and influences give the nation’s airline industry a somewhat distinct color. First, numerous issues that slowed down the Indian industry existed before the outbreak. Most Indian carriers, if not all of them, weren’t exactly rich even before COVID. Two full-service airlines, Kingfisher Airlines and Jet Airways were forced to close their doors in the past ten years alone for breaking the strict standards.

In India, fuel has always been more expensive, and the continual devaluation of the rupee hasn’t made matters any better. Airlines have struggled due to intense competition and often absurdly cheap ticket prices despite the nation’s aviation expansion. The government is now mostly out of the picture with Air India’s privatization, but interferences and oppressive red tape haven’t helped the Indian carriers’ case in the past. And this was all done before COVID came to our door.

Substantial Reliance On Fuel Prices

During our discussion on airline expenses, it became clear that the major expense for the aviation sector is gasoline. However, the issue is that airlines are price takers and must purchase gasoline at whatever price is offered. Because aircraft turbine fuel is similarly deregulated, its costs fluctuate following those of crude oil on a worldwide scale.

This is not the end of the issue, as these fuels are subject to high taxes in India, further complicating airline matters. In addition, airlines cannot pass these expenses through to customers, which is an issue.

In India, fuel costs between 30 and 40 percent of total operational expenses. The price of aviation turbine fuel (ATF), which exceeded the one lakh (100k) threshold per 1,000 gallons for the first time in India in March, makes this reality all the scarier.

Airlines have requested that the government include jet fuel in the scope of the goods and services tax so they may benefit from input tax credits, as earnings in the current climate appear out of reach.

Suppressed By Interference From The Government

The fact is that the industry has also suffered from a variety of mistakes made by both the private sector and, most importantly, the government. Governments have interfered as if their reelections relied on it, and businesses have lobbied as if their very existence depended on it.

The result is that the sector’s market forces have been muzzled for decades. The future of the industry is likewise being stifled by government meddling. The future of Indian aviation depends largely on connecting smaller Indian communities and making short-haul travel economical. Prime Minister Narendra Modi, although, insisted on a $35 cap on the cost of these visits, which is both populist and unreasonable.

There haven’t been many airlines interested, and those that have found that major airports would rather offer their limited landing slots to larger and more lucrative planes. Naturally, the new plan to link smaller airports appears to have failed before it even got off the ground since airline permits are being revoked left and right.

Price War And Intense Competition

People don’t focus as much on the services when the service time is brief. So they are prepared to move to a less luxurious, less costly airline offering fewer services. In the case of the Indian airline sector, brand loyalty is not something that we can anticipate.

These are the leading causes for why it is very challenging to make money in the aviation sector in India. As a result, every airline starts lowering its rates to attract consumers and combat competition. Considering all these obstacles, you might consider the aviation industry’s future.

Indian customers are renowned for being price-sensitive. Thus airlines are compelled to cap their pricing at a specific level despite hefty taxes and fuel costs. Industry executives discussed the matter at the most recent Wings India airshow.

When Sunil Bhaskaran, the CEO of AirAsia India, remarked that Indian aviation is suffering from “irresponsible competition,” it was assumed that he was making fun of IndiGo, which has more than 50% of the domestic market and can thus accept low fares better than its rivals.IndiGo intends to maintain its fierce competition, which isn’t exciting news for others. As a result, earnings will likely stay elusive until the current Russia-Ukraine war de-escalates.

Conclusion

Perhaps it is simple to attribute the brittleness of this industry to factors outside the airlines‘ control. Indian airlines suffer losses both when fuel prices rise and when the value of the rupee falls. Additionally, aviation is infamously prone to crises on a global scale.

However, there is undoubtedly something unique about Indian aviation, which appears to be in freefall even while demand rises faster than anywhere else. Despite being cutthroat and plagued by problems, the sector has seen double-digit growth. Despite the difficulty of the road ahead, the government is attempting to improve connectivity and is constructing airports in several places.