Of the 638 aircraft in Indian skies, all the 18 Boeing 737 Max’s are grounded. Even if this crisis isn’t grave enough and may blow over in a few months, India’s aviation sector still has too many air pockets ahead to revive any time soon. From being one of the most preferred airlines, Jet Airways is now fighting for its survival.

Despite the fact that the Indian civil aviation industry in currently considered the third largest domestic civil aviation market in the world, the industry is suffering from several problems.

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Granted, the airline business is a risky one around the world with high capex and low profit margins. But India is a special case even so.The issues plaguing aviation sector in India:

• Increase in fuel prices
  • Aviation turbine fuel (ATF) is one of the important sections of the industry.
  • The Centre charges 14% excise duty on ATF. The states pile on their own sales tax that can go as high as 29%.
  • ATF charges, vulnerable to currency movements, comprise a large chunk of Indian airlines’ operating expenses—some 40% compared to 20% for foreign carriers.
  • As the price for oil has shot up, it had led to difficulties for airlines as they have not been able to absorb in the short term due to their business model.
• Rupee depreciation:
  • The rupee’s depreciation is hitting carriers hard as it did a few years ago.
  • 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.
• Excessive parking and landing charges:
  • High Airport (aeronautical) Charges levied by Airport Authority of India.
  • These charges payable at the International airports are higher than those payable at the airports designated as Domestic airports.
  • As a result, the domestic airlines in India are incurring additional costs at the international designated airports without deriving any extra facilities.
• Fare wars:
  • There is a cut throat competition faced by the top airline due to ticket pricing.
  • Established Airlines are threatened by low cost carriers, which are eating up their market share.
  • In order to consolidate their market share, top premium airlines were forced to reduce their ticket fares to around 15- 20 per cent.
  • Such a slash down in price will lead to a price war in the long run amongst the airlines with the only goal of increasing their market share.
  • A growing market for low-cost carriers (SpiceJet, IndiGo and GoAir) that affected the profitability of a full-service carrier like Jet
• Loads of debt:
  • To keep the operations afloat, the carriers take loans.
  • But poor operational efficiency, steady losses in the wake of higher fuel costs and a weaker rupee leads to non-payment of debts.
  • No airlines company has been able to devise a credible currency policy to protect them against sharp currency movements.
• Lack of Managerial Expertise:
  • Indian aviation sector is struggling due to lack of managerial expert and expertise in the sector and lack of a regulator to monitor the industry
• Government policies limitations:
  • The new civil aviation policy (NCAP) 2016’s regional connectivity scheme doesn’t help.
  • Its goal is laudable and it may well benefit potential flyers in smaller towns.
  • But 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, mean that carriers are, by and large, left holding the can.

However, there are many positives too

• According to the Directorate General of Civil Aviation, India’s air passenger traffic has grown by at least 16% annually over the past decade.
• In 2000-01, it stood at a paltry 14 million passengers. In 2017, Indian airlines flew nearly 140 million passengers, most of them domestic.
• It is now the third largest aviation market in the world with growth rates that leave the US and China in the dust. There is no slowdown in sight.
• Airbus forecasts that domestic traffic will grow five and a half times over the next two decades.

Way forward:

• The government can lower the excise duty on jet fuel further to bring down the operational costs of the airlines.
• NCAP’s liberalization of foreign direct investment in the sector needs to be ironed out to attract investors.
• Bilateral treaties for international routes that Indian carriers are unable to take full advantage need to be looked into at the earliest.
• Insolvency and Bankruptcy code can be used to quickly resolve the issues in case of defaults and bankruptcy by airline companies.
• Aviation sector should have been better prepared to handle such an unforeseen situation, learning from the past situations – as fuel prices and rupee volatility were among the top reasons for one of the biggest aviation disasters of recent times.
• There is a need to set up simulators to develop the skills of unemployed pilots
• A clear long-term policy roadmap which is aligned to the industry’s requirements is yet to emerge. One method could be opening up international routes faster for our airlines that are successful.
• The industry stakeholders should engage and collaborate with policy makers to implement efficient and rational decisions that would boost India’s civil aviation industry.
• With the right policies and relentless focus on quality, cost and passenger interest, India would be well placed to achieve its vision of becoming the third-largest aviation market by 2025

Conclusion:

Above all, the industry experts and the government should be mindful of the fact that India’s aviation industry is largely untapped with huge growth opportunities, considering that air transport is still expensive for majority of the country’s population, of which nearly 40 per cent is the upwardly mobile middle class.