INDIA is probably the only country where its aviation industry is been registering positive growth year-on-year but its airlines are making huge losses. According to a forecast made by Centre for Asia Pacific Aviation (CAPA), Indian airlines are expected to make a record loss of US$2.5 billion to US$3 billion in the year ending March 2012. Out of that, Air India alone will account for more than half the total losses. CAPA also estimates that Indian carriers need an immediate infusion of US$2.5 billion to keep their operations from collapsing.
On the other hand, Indian Civil Aviation Ministry’s Vision-2020 documents predict that the growth of aviation sector has potential to absorb up to US$120 billion of investment. The country’s fleet size of commercial airlines is expected be approximately 1,000 aircraft, whereas domestic passenger numbers could reach 150-180 million by 2020.
The bigger question is why the Indian carriers are in dismal state despite the industry witnessing steady growth. Is it a bad Government policy or aggressive expansion by private airlines to be blamed for? Analysts say it is a combination of so many things, including exorbitant ATF cost; the weakened rupee; lack of MRO facilities within the country; substantial state tax on ATF; higher interest costs and operating losses; and a growing inability to service interest and debt obligations, besides others. India’s slow-paced infrastructure development has also added to the wounds badly.
Airlines’ revenues are still very much concentrated at the metro routes which are already very crowded. Airliners are not finding many of their non-metro routes viable to fly due to low load factor. Infrastructure is also a major issue for such smaller airports. India’s growth story is largely attributed towards burgeoning middle-class population residing in major metros as well as tier-II and tier-III cities. The ambitious plan of migrating large population of train-travellers into air travel which Capt. Gopinath talked about is somewhere not been realised yet. Airlines are finding it difficult to offer cheap air fares, thanks to high ATF cost and Government taxes. In some routes, it’s cheaper to fly international than domestic. Still, India’s airfares are one of the lowest in the world due to fierce competition among the airlines for bigger market share. But by doing so, airlines are deteriorating their financial health. Indian carriers are now on the verge of collapsing.
The industry calls for an immediate attention from the Government which needs to take some important decisions sooner than later. First thing that the industry needs is money to stay afloat. No one is advocating for a bail-out package for the industry but the Government should make provisions for fund infusion by allowing Foreign Direct Investment (FDI) into Indian airline companies. Though it seems that the Government would soon allow 26 per cent FDI in aviation, it should take the decision at the earliest possible time. Second thing, it should do is reducing the state tax on ATF as well as other taxes and custom duties, a long standing demand of the industry.
Almost every industry analysis has predicted that India and China will be the growth of engines for world aviation industry. In other words, these two countries will play a key role in shaping the future of aviation industry. India carries lots of responsibilities on its shoulder.