The suspension of operations at Jet Airways — at one time India’s largest private airline — announced recently, follows the troubles at Kingfisher, Air Deccan, and Sahara. The aviation sector is rife with hope and distress in a highly competitive market over the last 30 years.

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The issues plaguing Airlines industries 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

Relevance of the new aviation policy:

• The new civil aviation policy (NCAP) 2016’s regional connectivity scheme doesn’t help.
• The regional aviation policy is well-intentioned, but expecting private capital to flow to loss-making projects remains elusive.
• Its goal is laudable and it may well benefit potential flyers in smaller towns.
• The policy is also silent on the future roadmap for the state run Air India and the way forward for that airline.
• There is no word about removing the sales tax on ATF and other taxation measures levied on Indian carriers.
• The regional aviation policy unveiled by the previous government with incentives like 4% sales tax on ATF and no landing/ parking charges could not achieve the expected progress. Experts feel that the policy is too difficult to implement.
• Adding to the woes, the expected rise in helicopter operations, private flying and regional airlines is likely to add to the pressure.
• 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.

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.