While India’s largest airlines Air India and IndiGo have been attracting headlines due to their ambitious growth plans, some of the country’s other airlines are grappling with serious financial challenges.
Air India’s recent moves to order 470 aircraft signals that it is back in expansion mode, and data show competitor IndiGo has about the same number of aircraft remaining on its order books.
They are both looking to tap into the strong demand potential in the Indian market, but their growth strategies will also put more pressure on India’s smaller airlines, points out CAPA Centre for Aviation.
“Many of these airlines are already in difficulties,” CAPA Centre for Aviation noted.
Go First airline has entered voluntary bankruptcy, due partly to long-running fleet problems that are out of its control.
Another airline Spicejet is mired in court disputes as aircraft lessors seek unpaid fees, and Jet Airways faces looming deadlines to keep its relaunch hopes alive.
As competition continues to heat up in the Indian domestic market, the question is whether all these players can survive, or whether further consolidation will be required among the smaller independent airlines.
Undoubtedly, India's growing middle class and increasing disposable income have led to a significant rise in domestic and international air travel. As more people can afford to fly, the demand for air travel is expected to continue growing.
But analysts say India’s airline industry faces a myriad of problems including financial instability, intense competition, infrastructure constraints particularly in regional areas, regulatory complexities, rising fuel costs, pilot shortage and high operational costs.
One of the major issues plaguing the Indian airline industry is financial instability. Most airlines in India have struggled with high operating costs, intense competition, and fluctuating fuel prices.
Many carriers have faced losses and accumulated substantial debt, leading to financial distress and even bankruptcy in some cases.
India's airline industry is highly competitive, with numerous players vying for market share. This competition often leads to price wars, making it difficult for airlines to maintain profitability.
Low-cost carriers have emerged as strong competitors, offering competitive fares and capturing a significant portion of the market.
India's aviation infrastructure has struggled to keep pace with the rapid growth of the airline industry. Congested airports, inadequate runway capacity, and a lack of modern facilities in many tier two and tier three airports have led to operational challenges and delays.
Limited infrastructure development in smaller cities and towns also hampers the expansion of air connectivity to underserved regions.
Industry experts say the Indian aviation sector operates under complex and restrictive regulations, which can hinder growth and increase operational costs.
Regulatory approvals, bureaucratic processes, and taxation policies can be cumbersome and time-consuming for airlines. Streamlining and simplifying regulations would help the industry to flourish.
In energy-deficit India, fuel prices are a significant cost component for airlines, and the volatility of fuel prices poses a constant challenge in the highly price-sensitive Indian market. Fluctuations in oil prices on the global market impact operating costs and profitability.
Fuel taxes and surcharges imposed by the government also add to the burden, making it difficult for airlines to manage costs effectively.
Like many other emerging markets, India is experiencing a shortage of skilled pilots, primarily due to the rapid expansion of the airline industry.
As airlines add more aircraft to their fleets, finding qualified and experienced pilots becomes increasingly challenging. The scarcity of pilots can lead to flight cancellations, disruptions, and increased costs for airlines.
To support its ambitious growth plans, Tata Group, the new owner of Air India, plans to set up an aviation training academy to rival those considered the best worldwide.
Already there are talks about Air India setting up its own ground handling division to meet the airline's future needs.
While major cities in India have relatively good aviation infrastructure, regional areas lack adequate facilities and air connectivity.
Limited airports, poor infrastructure, and inadequate air services restrict the growth potential of these regions. Developing airports and improving connectivity to smaller cities would help stimulate economic growth and tourism.
Airlines in India face high operational costs due to various factors, including expensive airport charges, high taxes, and maintenance expenses.
Additionally, the country's complex tax structure and regulatory environment contribute to increased operational costs, impacting airlines' profitability and competitiveness.
That said, India's airline industry has a favourable environment for growth, driven by factors such as increasing disposable income, urbanisation, government support, infrastructure development, and the potential of the low-cost carrier segment. By capitalising on these opportunities and addressing challenges, the industry can flourish and contribute to the country’s economic development.
However, addressing these challenges requires a multi-faceted approach involving policy reforms, infrastructure development, and strategic management by airlines.
That requires government support in terms of favourable policies, regulatory simplification, and infrastructure investment. These would be instrumental in nurturing a more sustainable and competitive airline industry in India.
Pratap John is Business Editor at Gulf Times. Twitter handle: @PratapJohn
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