Airline Profitability

Recent issues in Indian Aviation Sector

  • With the inability to increase airfares despite rising fuel costs, airlines in India have flown into losses.
  • A mismatch in demand and supply, besides intense competition among players despite mounting losses, has kept fares low.
  • This, at a time when airlines are incurring high cost on account of a 40% rise in ATF prices, and a more than 9% depreciation of Indian rupee against the dollar.
  • The average airfare has gone down by 5% as more capacity is floating in the market. This was mainly created by IndiGo and rival airlines in need of cash, selling last minute fares at below cost, leading to lower yields.
  • Airlines are still holding fares due to high inventories, extreme competition and low slot availability at metro airports.
  • The eagerness of airlines to maintain market share has led to the price cut leading to low fares.
  • Size of aircraft fleets-A major problem for the airlines in India is that the size of their fleets is very small for the domestic or international destinations.
  • Unclear role of government-The role played by government has come up to question after its failure to resolve the status of Kingfisher airlines even after so many months.
  • Safety infrastructure-Various international authorities like the International Civil Aviation Organization (ICAO) has raised several concerns on the safety measures undertaken in the Indian aircrafts.
  • Limited foreign directed investments into the sector, which is far below the needed.

Factors supporting aviation sector to grow

  • Higher household incomes
  • Strong economic growth
  • Entry of low cost carriers (LCC)
  • Increased FDI inflows in domestic airlines
  • Increased tourist inflow
  • Surging cargo movement
  • Cutting edge information technology (IT) interventions
  • Focus on regional connectivity
  • Modern airports
  • Sustained business growth and
  • Supporting Government policies

Some major threats

  • A global economic slowdown negatively impacts leisure, optional and business travel.
  • The continuous rise in the price of fuel is a major threat.
  • A terrorist attack anywhere in the world can negatively impact air travel.
  • Government intervention can lead to new costly rules.
  • Operation of many airlines

Problems facing the aviation sector

  • High operational costs
  • High cost of aviation turbine fuel
  • High service tax and other charges
  • Shortage of maintenance facilities
  • High foreign exchange rate
  • Competition from foreign airlines
  • Congestion at airports
  • Lack of qualified pilots and technical manpower etc.

Foreign investments

  • Foreign Direct Investment (FDI) inflows in air transport between 2000-17 were around US$ 1,608.51 million.
  • The government has announced around 100 per cent FDI under automatic route in scheduled air transport service, regional air transport service and domestic scheduled passenger airline.
  • Currently, the Indian aviation industry is expected to witness Rs 1 lakh crore (US$ 15.52 billion) worth of investments in a few years.
  • Stiff competition restricts the foreign carriers to aggressively explore Indian market.
  • The total dependency for import of new passenger flights makes larger cost on the investments. (Rupee depreciation heavily affect in this regard)
  • Government of India has signed an agreement with Australia allowing airlines on either side to offer unlimited seats to six Indian metro cities and various Australian cities.

Location: Thiruvananthapuram, Kerala, India

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