NEW DELHI: The number of Indians flying may be growing at about 20% a year but, in contrast, most domestic carriers are bleeding. The Indian airline industry is facing turbulence. This time around, legacy issues and over capacity seem to have aggravated the situation.
Like in the past, high oil prices, currency fluctuations and lower yields have pushed airlines into a cyclical trap with at least two full-service airlines, Air India and Jet Airways, gasping for breath.
Staff salary payments have been delayed and frantic efforts are on to raise fresh capital. The three full-service airlines, including Vistara, have been posting losses. Low-cost airlines are better placed but except for IndiGo, none has the balance sheet to withstand further deterioration in environment.
“Of course, we are impacted,” said GoAir CEO Cornelis Vrieswijk. “But we have massive opportunity to bring costs down further. We are focusing on operational efficiency. We have to be efficient and low-cost to survive.” GoAir is progressively inducting fuel-efficient A320Neo aircraft to keep costs low. It is also banking on technology to remain cost- efficient.
“For airline operators, the increase in costs has been exacerbated by significant downward pressure on yields,” said Kapil Kaul, CEO, Indian subcontinent & Middle East, CAPA, an aviation consultancy and research firm.
“This is due to the rapid increase in capacity as carriers take delivery of new aircraft at an unprecedented rate. Traffic, however, continues to be stimulated by the lower fares on offer, delivering larger losses.” He said many carriers are ill-equipped to withstand the current downturn. Most airlines have cash balances equivalent to only 2-3 weeks of expenses.
CAPA estimates Indian carriers will incur a combined loss of $1.9 billion this fiscal. It also said Indian carriers would need $3 billion in capital in the near team, including $400 million by low-cost airlines, to sustain operations.
External factors such as oil prices and the exchange rate have contributed to headwinds. Acute pilot shortages, particularly commanders and a number of long-term structural challenges are bogging the sector down. “Slot constraints, insufficient parking bays and congestion at key airports, and high taxes on fuel are the main challenges,” Mr. Kaul said.