India has also seen a massive development in the economy with its pace of economic growth being at least 6% since 1991. This means that there are millions of people who can afford to travel. This would seem like a paradise for the aviation industry in the country but that’s not the case in India.
There are only a couple of airlines that occasionally turn a profit. Not only this but also why do Indian airlines keep going bankrupt? The demand is there, so what is causing the problem?
After independence, India had 8 domestic airlines. Seeing the industry of aviation growth, the government decided to take control and introduced 2 entities. The domestic airlines are named Indian Airlines and the International airline, Air India.
The aviation sector was not deregulated again till 1991, which saw the introduction of several small domestic airlines. The most modern airlines of India like Spicejet, IndiGo, GoAir, etc started to appear in the following decade. The government during this time introduced the first regulation, the 5/20 rule.
This means that airlines need to operate for a period of 5 years domestically before they can start international service. They also needed a fleet of 20 aircraft to do so. This benefitted Air India and gave them time to outcompete their competitors.
The aviation market despite the growth of the middle class was not high yield. This was primarily due to the price-sensitive mindset of the middle class. Airlines have figured out that it is more profitable to fly more carriers with cheap seats than fewer planes with premium seats.
But even the low-cost carriers are not making profits every time. The two consistently profitable airlines are IndiGo and Spicejet, but even they have weak periods. This is because there is so fierce competition amongst low-cost and premium airlines that the margins are paper-thin. Airplane fuel accounts for 34% of all the operational costs in India due to government intervention while the global average is 24%.
Low-cost carriers price their tickets at a much less profit than their full-service counterparts, but by doing so they gain more passengers, while the full-service operators have to fly half full despite paying the 34% of fuel cost that is fixed for both the services.
The Airport Charges applied by the Airport Authority of India are also quite high. These charges payable at the International airports are higher than those payable at Domestic airports.
As a result, the domestic airlines in India have to pay additional costs at the international designated airports without deriving any extra facilities. Charges at these international airports are the highest amongst other Asian and Gulf countries which makes it harder for aviation companies.
Currently, India can offer huge growth in the aviation industry. 40% of the population is an upwardly mobile middle class which prefers air travel as a better mode of transport.
The government must engage and collaborate with industry stakeholders to implement efficient and rational decisions that would enable the growth of India’s civil aviation industry.