What’s holding back Indian Aviation
Why Air India is surviving on a Bailout funded by the Taxpayer
As new Airlines launch, and the market grows steadily, existing domestic carriers are struggling to stay in the Air. A look at what’s holding back Indian Aviation.
If there was ever a good time to run an Airline in India, it’s now, said Ajay Singh, as he walked into a meeting with top Aviation ministry officials last December, when SpiceJet’s problems were at their peak.
On January 15, SpiceJet announced that a deal had been sealed between billionAire media tycoon Kalanithi Maran and Singh that would see the latter return to the helm of affAirs at the Gurgaon-based low-cost carrier.
What Singh said made sense, considering that global crude prices have plummeted by almost 60% — from $110 a barrel in June 2014 to close to $45 a barrel. Industry experts estimate that the fall in crude prices could help Indian carriers save up to $400 million, or about Rs 2500 crore, this fiscal.
Aviation turbine fuel (ATF) in India is priced, on average, about 60% higher than internationally. It is the single largest element contributing to Airline costs and accounts for 40% of the operating cost of Indian carriers — as against a figure of only 20% for international carriers. Domestic carriers pay up to 50% more for fuel than those in Dubai or Singapore.
Development of the Aviation sector is vital to India’s economic growth and can have a very high multiplier effect. According to a study by the International Civil Aviation Organisation, every Rs 100 spent on Air travel results in Rs 325 worth of total benefits and every 100 direct jobs in Aviation results in 610 new jobs overall.
A tale of wins and losses
India’s beleaguered Aviation industry is starting to see signs that could mark the beginning of a structural turnaround in its fortunes, said a January 2015 report by Aviation consultancy Centre for Asia Pacific Aviation (CAPA).
The decline in fuel prices has contributed significantly to the improved outlook. Two Indian Airlines — privately held IndiGo and GoAir — are expected to end the year in the black. Most Indian carriers are likely to report profits in the December quarter. Jet Airways reported a net profit of Rs 63.11 crore in the December quarter as against a loss of `267.89 crore in the corresponding quarter in 2013. IndiGo and GoAir will also report profits.
“India’s Aviation system may at last be coming of age,” says Kapil Kaul, South Asia CEO of CAPA.
Within five years, India, one of the fastest growing markets in the world, will become the third largest Aviation market globally. Indian carriers are expected to double their combined fleet size by 2020, to a total of around 800 Aircraft.
Three new Airlines — Air Costa, AirAsia India and Vistara — have launched operations in the last 18 months, and another six have been granted approval by the union ministry of civil Aviation. Domestic passenger traffic rose by about 10% in 2014, as 673.83 lakh passengers travelled by Air, against 614.26 lakh in 2013.
“Travel management companies report that business travel is picking up, which is reflected in the increased focus by Air India, Jet Airways and Vistara on the full service market,” says Kaul.
Deep structural issues, however, continue to ail the Indian Aviation sector. No other sector in India that is growing at this rate is suffering such heavy losses. A confidential Aviation ministry note following the SpiceJet crisis said the budget carrier wasn’t the only Airline in a precarious financial condition, and if urgent steps weren’t taken, there were some other Airlines that could end up the same way.
Despite falling crude prices, the Indian Aviation industry is expected to end the current financial year with estimated losses of about $1 billion or Rs 6,100 crore, according to an estimate by CAPA.
This follows a $1.7 billion loss last year. Over the past seven years, Indian carriers have lost a combined $10.6 billion (more than Rs 60,000 crore), or an average of $22 every time a passenger boarded an Aircraft.
Kingfisher shut down operations in 2012, Air India is surviving on a bailout funded by the taxpayer, Jet Airways posted a loss of Rs 3,667 crore last fiscal while SpiceJet just managed to survive after Ajay Singh stepped in.
“Airlines, other than IndiGo, will require $1.6 billion [Rs 9,600 crore] of funding this year just to sustain their business models. The prospects for further direct investment in Airlines remain very uncertain in the current climate,” says a July 2014 CAPA report.
What ails Indian Aviation?
A combination of factors, including certain government policies, has pushed the Aviation sector into the mess it is in. A clear long-term policy roadmap which is aligned to the industry’s requirements is yet to emerge, say experts.
“India is probably the only country that discriminates against its own carriers,” says Rajji Rai, an Aviation expert and former president of the Travel Agents Association of India. The 5 year/20 Aircraft rule prevents Indian carriers from beginning international operations until they have been operating domestically for five years and have a fleet of at least 20 Aircraft, while no such restriction applies to foreign Airlines Flying into India.
Several carriers currently operating to India such as Air Arabia, Etihad, FlyDubai, and TigerAir first entered the market well before they had been in operations for five years. Also, Indian Airport charges are among the highest in the world, which impacts profitability.
ATF in India is subject to some of the highest taxes in the world, with sales tax in some states as high as 29%. “ATF prices in India are really hurting Indian Aviation and challenging the very viability of several Airlines,” SpiceJet COO Sanjiv Kapoor said in an October 2014 letter to the Aviation ministry.
“All is not lost yet. The government can easily sort things out if it wishes to,” says a CEO of budget carrier.
“Aviation hubs like Dubai, Singapore and Doha have left India far behind. If Aviation continues to be treated as a luxury, no reforms will happen,” counters Rai.
Quick fix
The government must recognise Aviation as a critical sector that is vital to India’s economic growth.
“Lower ATF prices and a reduction in sales tax to 4% will give the sector a big boost and could be a game-changer,” says Kaul.
Eliminating the tax structure on maintenance, repAir and overhaul (MRO), removing negative restrictions on ancillaries and abolishing 5/20 rule are some other measures that the government needs to take.
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Why Air India is surviving on a Bailout funded by the Taxpayer
If there was ever a good time to run an Airline in India, it’s now, said Ajay Singh, as he walked into a meeting with top Aviation ministry officials last December, when SpiceJet’s problems were at their peak.
On January 15, SpiceJet announced that a deal had been sealed between billionAire media tycoon Kalanithi Maran and Singh that would see the latter return to the helm of affAirs at the Gurgaon-based low-cost carrier.
What Singh said made sense, considering that global crude prices have plummeted by almost 60% — from $110 a barrel in June 2014 to close to $45 a barrel. Industry experts estimate that the fall in crude prices could help Indian carriers save up to $400 million, or about Rs 2500 crore, this fiscal.
Aviation turbine fuel (ATF) in India is priced, on average, about 60% higher than internationally. It is the single largest element contributing to Airline costs and accounts for 40% of the operating cost of Indian carriers — as against a figure of only 20% for international carriers. Domestic carriers pay up to 50% more for fuel than those in Dubai or Singapore.
A tale of wins and losses
India’s beleaguered Aviation industry is starting to see signs that could mark the beginning of a structural turnaround in its fortunes, said a January 2015 report by Aviation consultancy Centre for Asia Pacific Aviation (CAPA).
The decline in fuel prices has contributed significantly to the improved outlook. Two Indian Airlines — privately held IndiGo and GoAir — are expected to end the year in the black. Most Indian carriers are likely to report profits in the December quarter. Jet Airways reported a net profit of Rs 63.11 crore in the December quarter as against a loss of `267.89 crore in the corresponding quarter in 2013. IndiGo and GoAir will also report profits.
“India’s Aviation system may at last be coming of age,” says Kapil Kaul, South Asia CEO of CAPA.
Within five years, India, one of the fastest growing markets in the world, will become the third largest Aviation market globally. Indian carriers are expected to double their combined fleet size by 2020, to a total of around 800 Aircraft.
Three new Airlines — Air Costa, AirAsia India and Vistara — have launched operations in the last 18 months, and another six have been granted approval by the union ministry of civil Aviation. Domestic passenger traffic rose by about 10% in 2014, as 673.83 lakh passengers travelled by Air, against 614.26 lakh in 2013.
“Travel management companies report that business travel is picking up, which is reflected in the increased focus by Air India, Jet Airways and Vistara on the full service market,” says Kaul.
Deep structural issues, however, continue to ail the Indian Aviation sector. No other sector in India that is growing at this rate is suffering such heavy losses. A confidential Aviation ministry note following the SpiceJet crisis said the budget carrier wasn’t the only Airline in a precarious financial condition, and if urgent steps weren’t taken, there were some other Airlines that could end up the same way.
Despite falling crude prices, the Indian Aviation industry is expected to end the current financial year with estimated losses of about $1 billion or Rs 6,100 crore, according to an estimate by CAPA.
This follows a $1.7 billion loss last year. Over the past seven years, Indian carriers have lost a combined $10.6 billion (more than Rs 60,000 crore), or an average of $22 every time a passenger boarded an Aircraft.
Kingfisher shut down operations in 2012, Air India is surviving on a bailout funded by the taxpayer, Jet Airways posted a loss of Rs 3,667 crore last fiscal while SpiceJet just managed to survive after Ajay Singh stepped in.
“Airlines, other than IndiGo, will require $1.6 billion [Rs 9,600 crore] of funding this year just to sustain their business models. The prospects for further direct investment in Airlines remain very uncertain in the current climate,” says a July 2014 CAPA report.
What ails Indian Aviation?
A combination of factors, including certain government policies, has pushed the Aviation sector into the mess it is in. A clear long-term policy roadmap which is aligned to the industry’s requirements is yet to emerge, say experts.
“India is probably the only country that discriminates against its own carriers,” says Rajji Rai, an Aviation expert and former president of the Travel Agents Association of India. The 5 year/20 Aircraft rule prevents Indian carriers from beginning international operations until they have been operating domestically for five years and have a fleet of at least 20 Aircraft, while no such restriction applies to foreign Airlines Flying into India.
Several carriers currently operating to India such as Air Arabia, Etihad, FlyDubai, and TigerAir first entered the market well before they had been in operations for five years. Also, Indian Airport charges are among the highest in the world, which impacts profitability.
ATF in India is subject to some of the highest taxes in the world, with sales tax in some states as high as 29%. “ATF prices in India are really hurting Indian Aviation and challenging the very viability of several Airlines,” SpiceJet COO Sanjiv Kapoor said in an October 2014 letter to the Aviation ministry.
“All is not lost yet. The government can easily sort things out if it wishes to,” says a CEO of budget carrier.
“Aviation hubs like Dubai, Singapore and Doha have left India far behind. If Aviation continues to be treated as a luxury, no reforms will happen,” counters Rai.
Quick fix
The government must recognise Aviation as a critical sector that is vital to India’s economic growth.
“Lower ATF prices and a reduction in sales tax to 4% will give the sector a big boost and could be a game-changer,” says Kaul.
Eliminating the tax structure on maintenance, repAir and overhaul (MRO), removing negative restrictions on ancillaries and abolishing 5/20 rule are some other measures that the government needs to take.
Flying without wings: What's holding back the Indian Aviation sector
A look at what's holding back Indian Aviation If there was ever a good time to run an Airline in India, it's now, said Ajay Singh, as he walked into a meeting with top Aviation ministry officials last December, when SpiceJet's problems were at their peak
UAE Airlines ask Indian Aviation authorities for increase in capacity
UAE carriers on Tuesday called on Indian authorities to open up more capacity to them and warned their growth in the country was being held back Adel Ali, the group chief executive of Air Arabia, said that the Sharjah-based low-cost carrier had
Aviation ministry bats for uniform tax on jet fuel
The civil Aviation ministry is also pushing for tax exemptions for the MRO industry MRO in India is estimated at $700 million but only 5-10 per cent of the business is carried out within the country “If we waive the service tax and VAT, maintenance
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About Flying and freedom (and, of course, love), the Bollywood movie “Hawaizaada,” directed by Vibhu Virender Puri, spins legend into more legend The year is 1895, and the setting is Bombay The story concerns a quest by two Indians to build an
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