India: Jet Airways in tailspin, nosedive at IndiGo. New Delhi must stop India’s aviation sector crashing – or face election turbulence

  • In just months, India’s domestic aviation sector has gone from being the world’s fastest growing to a chaos in which over 1 in 7 planes are grounded
  • As disgruntled passengers head to the polls, New Delhi must engineer a course correction and quick

Vasudevan Sridharan 14 April 2019

A disused Air India passenger plane which fell from a ground transporter while being moved near Begumpet Airport in Hyderabad. India’s aviation sector is going through a rough patch. Photo: AFP

A disused Air India passenger plane which fell from a ground transporter while being moved near Begumpet Airport in Hyderabad. India’s aviation sector is going through a rough patch. Photo: AFPWhen Bhaskar Dahbi booked a last-minute flight from the southern Indian city of Hyderabad to the western city of Ahmedabad to attend his uncle’s funeral, little did he know his 1,200km journey would be in vain.

The software developer, 27, arrived at the airport in good time to cover any eventualities and things appeared to be going his way. All around him, flights were being delayed, rescheduled or cancelled but at least the departures board suggested his own flight would be spared the chaos.

Until shortly before take-off, that is, when he heard that his flight, like so many others that day, would be delayed for hours.

“The airlines could have announced the delay at least three hours before. Flights were constantly being delayed from the morning. But instead, I was informed about the delay [so late] that I had no choice but to stay inside the aircraft,” Dahbi recalled. By the time he arrived in Ahmedabad, Dahbi had already missed the funeral.

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Dahbi is among tens of thousands of Indians to have been hit by the delays, cancellations and rocketing prices that have plagued the country’s aviation sector in recent months. And on Friday, Jet Airways announced it would cancel all international flights from Saturday to Monday.

Until the second half of last year, India was the world’s fastest-growing aviation market, passenger numbers were up and the Ministry of Civil Aviation was confidently predicting it would hit 1.1 billion air travellers by 2040. Growth appeared guaranteed as it seemed inevitable that the aspiring middle class of Asia’s third-largest economy would slowly come around to considering air travel a viable mode of transport rather than a luxury.SUBSCRIBE TO THIS WEEK IN ASIAGet updates direct to your inboxSUBMITBy registering for these newsletters you agree to our T&C and Privacy Policy

But now the industry is in a nosedive, with hundreds of passengers like Dahbi losing money, time and business opportunities every day.

STORM CLOUDS

More than 120 of the 700-odd aircraft belonging to India’s domestic airlines are currently grounded, for a host of reasons ranging from unsustainable business models and financial problems to crew shortages. To put this in perspective, the number of grounded aircraft is now greater than the fleet of SpiceJet, the country’s fourth-largest operator.

Unforeseeable circumstances, like the grounding of Boeing 737 MAX planes after the crash of an Ethiopian Airlines flight near Addis Ababa in March and the closure of Pakistani airspace after a terrorist attack on Indian security personnel in Kashmir, have exacerbated the situation.

From January to February this year, the number of passengers carried by domestic airlines dropped from 12.5 million to 11.3 million. Figures for last month have not been released yet, but are expected to be even worse.

“I think the DGCA [Directorate General of Civil Aviation – government’s regulatory body] will not release the numbers for March any time soon because of the upcoming elections,” said Sudhakara Reddy, president of the non-profit organisation Air Passengers Association of India.

He said that, even on a conservative estimate, 80,000 passengers a month were being affected by the disruption.

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India is the world’s third-largest domestic civil aviation market. Of its 14 registered operators, a handful of players – IndiGo, Air India, Jet Airways, SpiceJet, GoAir, Vistara and AirAsia India – dominate.

Yet in the present crisis, even the major carriers are operating truncated schedules and have been staring at balance sheets firmly in the red for the past 12 months, after recording losses in successive quarters.

The losses are mounting at the national carrier Air India, while SpiceJet is on the hunt for fresh funds to stay in the air and IndiGo, the market leader, in October announced its first losses since its launch in August 2006.

In part, the sector has become a victim of its own success. The growth of the industry in recent years led to an increase in the number of carriers and the resulting competition caused a price war that hit everyone’s bottom line.

“2015 to 2016 was a silver lining in the Indian aviation industry, when low-cost carriers like IndiGo edged upwards to become full-service carriers,” said Ashish Nainan, an aviation analyst at the CARE rating agency.

“Heightened competition brought the overall prices of tickets down by nearly one-third. [Encouraged by] tumbling oil prices, the full-cost carriers tried to match budget carriers by engaging in disruptive price wars. Part of the story in the ongoing crisis is due to this phenomenon,” Nainan said.

Even IndiGo, the industry leader with 43.4 per cent market share, has been hit by the crisis. A shortage of pilots has forced it to ground several aircraft, causing a wave of cancellations throughout last month.

A source at the domestic pilots’ body National Aviators Guild (NAG) said IndiGo faced a terrible attrition rate of pilots, with nearly 10 per cent leaving every month.

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Asked to comment on the claim, an IndiGo spokesperson would say only that it had a healthy pilot-to-aircraft ratio.

The unsettling atmosphere has been made worse by a recent spike in prices as carriers struggle to balance their books. In recent weeks, domestic airfares have increased sharply and they are likely to become even more expensive over the peak travel period in late April and May.

Balu Ramachandran, head of air travel and distribution at the website Cleartrip, said last-minute airfares had jumped 50 per cent compared to last year and the rise was even more pronounced for trips between major cities.

JET WASH

At the heart of the spiralling crisis is Jet Airways, which was once a market leader. About 22,000 of its employees received an email on the evening of March 25 from their embattled chief Naresh Goyal, informing them he would be stepping down after a 25-year reign at India’s oldest and first successful private airline.

In the poignant note, the fiercely ambitious Goyal, a former travel agent who was later touted as the “King of Air”, wrote: “There is no sacrifice I would not make to ensure the best interests of the Jet Airways family are safely secured.”

Goyal’s resignation, though long-awaited, was seen by some as the final nail in the coffin as the carrier – once regarded as an airline of excellence amid a fleet of low-cost competitors – has been struggling with excessive debt for months. The airline presently owes US$1 billion to banks, suppliers and staff. Ominously, Jet Airways’ story has until now paralleled the trajectory of India’s domestic air travel sector. The company was launched in 1993, two years after the country ushered in massive economic reforms and neoliberal policies demanded by the World Bank and IMF in return for a US$500 million bail out. It was modelled on Singapore Airlines, the industry leader of the time.

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Goyal, who became one of India’s richest men within a decade of the airline’s launch, was the poster boy of the country’s entrepreneurial spirit at the turn of the century. His rise was particularly extraordinary, given the hostile regulatory policies of the time, the poor condition of Indian airports and his various run-ins with governments.

Now, as the house that Goyal built comes crashing down, the collapse of a company that recently commanded an 18 per cent market share is bound to have painful repercussions for the Indian aviation industry.

Few are confident Jet’s fortunes can be reversed, though some analysts believe the government will inject at least enough money to keep it afloat until the end of the general election period next month.

COURSE CORRECTION

The present woes of India’s domestic carriers are a lesson in just how far the mighty can fall. As recently as last year it was the world’s fastest-growing aviation market, with passenger numbers up 18 per cent and an extra 131 aircraft in the skies.

And these travails fly in the face of various ambitious predictions that have long assumed years of unbridled growth lay ahead. The International Air Transport Association estimates the number of domestic fliers in India will touch 500 million by 2037 while the Ministry of Civil Aviation predicts 1.1 billion by 2040. The government expects investment in the Indian aviation industry to touch US$15.5 billion in the next five years and is hoping to spend about US$1.83 billion to improve airport infrastructure facilities.

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Most experts say that if it is to reverse the industry’s current course, then the government must cut the tax rate on Aviation Turbine Fuel (ATF), the single largest expense for airlines. At present the tax makes it cheaper for airlines to fly internationally than domestically, on a per litre basis.

But the tax rate is just one of a host of issues industry insiders say must be addressed if the sector’s short- and long-term health is to be safeguarded.

“There are parliamentary committees constituted to look into fare levels, but no such committees are looking at airport monopolies, competitive dynamics, the lack of adequate financing, inability to use secondary airfields as alternatives and comprehensive transport planning,” said Satyendra Pandey, an aviation expert who until recently was the chief of strategy for the low-cost carrier GoAir.

As the country’s long election process gets underway, India’s politicians have been put on notice: help correct the course of India’s civil aviation sector – or face going down along with it. ■

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