What is the similarity between East West Airlines, Damania Airways, Kingfisher Airlines, Jet Airways, and Air India?
All these carriers have failed to thrive in Indian aviation industry, the third largest aviation sector globally. It is indeed puzzling, how the Indian economy can grow so swiftly and yet still, fail to be prosperous! As the increase in demand rate in India is perhaps the highest in the world (the aviation market has grown by almost a fifth in a decade), the industry hasn’t benefited as much and almost every airline has been struggling recently!
Image Credits: liveMint
Jet Airways, which folded in April 2019, had liabilities worth $2.2b (Rs.15000 cr.), while presently, SpiceJet has been in red for two consecutive quarters. The national carrier Air India has been struggling to stay afloat, while the market leader, IndiGo posted a quarterly loss for the first time since 2015. One might easily point finger towards various factors that contribute to the fragility of the market – as fuel prices soar, or Indian rupee depreciates, Indian Airlines suffer. Moreover, aviation is extremely prone to global crisis like regional unrest and geopolitical issues.
Kingfisher shut operations in Sept. 2011. Image Credits: Times of India.
The troubles of Indian aviation sector are a microcosm of how the economy works. Superficially, everything seems perfect: strong demand, smart strategies by the companies and sound policies. However, a combination of private sector overconfidence and government intervention means that it is always difficult to make sustained profits. That said, the only model that can survive such rigorous conditions, is a low-cost one, which is why so many full-service airlines have failed in recent years, while Low Cost Carriers have somehow managed to sustain.
With substantial and increasing demand for air travel in India, if the supply is created, the demand should follow (that’s the textbook rule, after all). Emirates managed to make Dubai the hub of aviation in the middle east by the same logic. The unfortunate contrast to this in India is that until the government allows the sector to develop by itself, it will remain inefficient and unhealthy for competition. The government has the ‘5/20’ rule, which means an airline must operate for five years in India and have 20 aircraft to be able to fly overseas. This limits the ability to earn more revenues. Next issue is Foreign Investments: Foreign Direct Investment in Indian airlines is capped at 49%. Aviation is a highly capital-intensive business and investment limits prevent it from flourishing in newer international market segments.
Air India is currently being bid by the govt, with good chance that AI might shut down too. Image Credits: Airliners.net
For every empty seat on a plane, an airline takes a hit on its profitability. Until the government policies allow the aviation market to thrive on its own, and the private airlines aim for long term sustainability over short term profits, cases like Kingfisher and Jet are bound to repeat! The Indian Aviation sector is a textbook example of how the market can be appealing and yet so full of deterrents to make profit in aviation!