The airline problem in India
Aviation has been in the news for various reasons such as Air India and Jet Airways. in focus for prelims will be important aspects such
as new civil aviation policy, RCS-Udan scheme and mains would focus on problems of the airline sector as a whole.
The airline industry in India
According to the Directorate General of Civil Aviation(DGCA), India’s air passenger traffic has grown by at least 16% annually over the past
decade. In 2000-01, it stood at 14 million passengers. In 2017, Indian airlines flew nearly 140 million passengers, most of them domestic.
Yet, that growth has been largely profitless. The Centre for Asia Pacific Aviation predicts consolidated industry losses of between $430-460
million in FY19.
High aviation fuel prices, rupee depreciation against the dollar, excessive parking and landing charges, loads of debt and fare wars, even
some inefficient operations, have been the millstones around the airline industry. Airlines such as Jet Airways, IndiGo, SpiceJet, GoAir and Air
India continues to struggle when it comes to financial and operational performance.
Jet, which cancelled all flights, has at least Rs 15,000 crore in dues and leaves more than 15,000 unpaid staff in the lurch. Air India has
debt repayments worth Rs 9,000 crore lined up this financial year and limited means to service them. GoAir has grounded at least 10 of its 48
planes for want of a network to fly them. More than 15 top executives have quit the airline in the last few months. IndiGo’s Airbus planes have
developed constant issues since they were pressed into services, leading to several groundings since 2018. The country’s aviation regulator,
DGCA recently served notices to the airline on the engine issues and will be conducting a safety audit on its fleet soon.
Problems of Air India
Saddled with a debt of some 550 billion rupees, Air India has been outmanoeuvred by private carriers in India’s intensely competitive
aviation market. Air India’s revenue from passengers topped 55 billion rupees October-December(2018), an increase of 20% on the year.
In December,2018, parliamentary approval was sought for a capital infusion of 23 billion rupees into Air India, on condition that the
airline meet such goals as higher levels of operational efficiency, creating distinct business strategies for each of its core businesses and
improving the quality of its workforce. According to sources, the airline has satisfied enough of those requirements for the injection to go
As of August,2018, the airline had received over 270 billion rupees in support under a 10-year turnaround plan approved by the previous
government in 2012. The plan provides for a total equity infusion of 302 billion rupees into the airline through 2021. But keeping Air India
afloat is only the first step for the government.The plan provides for a total equity infusion of 302 billion rupees into the airline through 2021.
But keeping Air India afloat is only the first step for the government. It must also make the airline appealing to buy found no takers. Potential
buyers were apparently put off not only by the airline’s massive debt, but also because the state sought to retain a 24% stake, which would
give it a presence on Air India’s board and require its consent on important resolutions. Budget documents released on Feb. 1, 2019 show the
government will also provide 39 billion rupees for servicing debt transferred to Air India Asset Holding.
Problems of aviation sector
The rupee depreciation is hitting carriers hard. About 25-30% of their costs, excluding fuel, are dollar denominated—from aircraft lease
rents and maintenance costs to ground handling and parking charges abroad.
Aviation turbine fuel(ATF) prices constitute about 40% of costs for an Indian carrier and are taxed higher here than anywhere else in the
world. The Centre charges 14% excise duty on ATF. The states pile on their own sales tax that can go as high as 29%.
The intense competition among domestic carriers, the need to capture a slice of the ever expanding market and passenger price
sensitivity makes the airlines difficult to raise ticket prices.
The new civil aviation policy (NCAP) 2016’s regional connectivity scheme doesn’t help. The ticket price caps it imposes under the
scheme, the fact that the viability gap funding will last only for three years and various operational issues such as the lack of slots for
connecting flights at major airports are a hindrance.
Rules such as route dispersal guidelines (RDG) that mandate airlines to fly a certain percentage of flights in smaller, unprofitable air
routes is archaic in nature.
The projected growth in capacity, because of plane orders, will lead to a 14% shortfall in commander pilots, a part of which will have to
be fulfilled by more expensive expatriates, leading to a rise in the wage bill, the second biggest cost chunk after fuel. Key findings of the
Challenges of the airlines industry
Energy is definitely the centre of human life – without it there would be no modern life. Ever since the 19th century, the role of fossil fuels has
expanded with every passing year. Much has been made out about the negative impacts on the climate and the resultant effects on health,
but the fact remains that it is still impossible to imagine a world without fossil fuels and the energy that they have to offer. The airline industry
offers a perfect example of a sector that is almost entirely dependent on fossil fuels and its availability. In fact, about 30% of the costs of
the industry goes towards kerosene. This article tries to offer insights into the biggest challenges faced by the airlines today.
Any change in the GDP is often reflected in airline usage and the fuel also costs almost 50% more in just 5 years. According to Antonio
Vázquez, the chairman of IAG and Iberia, competitiveness is one of the most important problems being faced by the airline industry in Europe.
Vazquez mentions that this makes alliances vital for the growth and development of airlines – whether with high-speed rail links or with other
airlines. He states Iberia’s merger with BA as an example where both airlines have managed to gain immense benefits from the merger
despite the fact that they haven’t integrated operations.
The Fuel Factor
Fuel price remains to be the biggest concern faced by the airline industry in the modern world. The high costs have led to many airlines
imposing fuel surcharges on customers. Industry analysts estimate that with the ever-increasing fuel prices, most airlines are feeling an
effect on their bottom lines. An analyst working for the Walter Capital Management states that there is an obvious connection between airline
stock and crude oil prices. Singapore Airlines has already termed the cost of fuel as its main challenge. Although it airline doesn’t face the
challenges faced by the airlines that are privately owned, it still finds it very difficult to tackle fuel prices. Non-government owned airlines like
JetBlue and British Airways have many other issues to tackle as well, but fuel costs remain high on their list. Matters simply become worse
when economies suffer from economic recessions. In fact, the airline industry suffered an all-time low during economic recessions in the
A number of airlines like the TWA have already gone out of business because of issues like overcapacity. Most major airlines in the industry
still struggle to get a grip on the constant changes, and many carriers have been seen to be slow to adapt to the changing economic
environment. As a result of overcapacity, airlines have had to suffer from rock bottom fares, something that might delight flyers, but not the
airlines. These fares directly lead to a major revenue problem, which is already suffering from high fuel costs.
A number of airlines in Europe have suffered because of issues like pilot walkouts. Just recently, both Air France and KLM were hit by a 14-
day pilot strike which hit the earnings by almost 500 million euros. Even Lufthansa has complained of suffering from the pain caused by pilot
walkouts, with issues like these outweighing the benefits that lower oil prices had to offer in recent times.