Struggle to stay afloat
PASSENGERS are unhappy with cancellations and high fares, airlines are grappling with a cash crunch and struggling to stay a oat. India’s aviation industry, ready to soar less than a decade ago, now looks poised for a hard landing.
High taxes, poor infrastructure, even worse management and the absence of a national aviation policy have hobbled attempts to regroup, analysts say.
Civil Aviation Minister Ajit Singh told parliament recently that the combined losses of state-run Air India and ve private airlines were expected to reach $2 billion in the nancial year ending March 2012. Air India is staggering under the weight of its debts of more than Rs 675.2 billion ($12.27 billion). That is being made worse by losses from a month-long strike by some of its pilots.
King sher Airlines, until 2011 the second-largest operator after Air India, now has the lowest market share and may go bust unless it nds fresh funds. It ended all international ights in 2011.
Despite strong growth in air passenger numbers of 12 to 17 per cent annually between 2006 and 2011, only 3 per cent of the Indian population ies, according to a recent report by Mumbai-based investment information and credit rating agency ICRA.
India’s aviation industry is a potentially high-growth market, but several things have gone wrong since 2005, when several private rms entered the market with high hopes and passengers bene ted from competitive fares.
“The state of today’s Indian aviation industry is the result of a number of factors — not least of which was aggressive expansion by the country’s airlines just as the world encountered a pair of massive economic shocks in succession — the skyrocketing oil prices in 2008 that shifted almost overnight into a global - nancial crisis,” said Tony Tyler, DirectorGeneral of the International Air Transport Association.
The high oil prices and the limited ability of airlines to raise their prices due to strong competition and overcapacity left the operators with high debt burdens and liquidity constraints, according to the ICRA report.
Budget carrier Indigo is the only airline that has managed a smooth ride.
The high cost of aviation fuel has impacted the industry the world over but is worse for India, which imports most of its oil. One thousand litres of aviation fuel cost $1,207 in Mumbai in March compared to $808 in Singapore, according to global aviation analyst Centre for Asia Paci c Aviation.
The falling value of the rupee, which has slipped by about 25 per cent against the dollar since August, added to the fuel cost, which is further burdened by a high taxation regime. A value added tax levied on aviation fuel by the states ranges from 20 to 30 per cent.
Poor quality air navigation services and congestion at airports have led to losses of thousands of dollars as ights are forced to into holding patterns before they get a landing slot.
Construction of a second airport at Mumbai, the commercial capital, is yet to begin and is unlikely to meet the target of opening its rst phase in 2014.