Indian aviation faces headwinds

FE Team | Published: November 25, 2018 01:19:00

An inherent contradiction is unnerving the Indian aviation market as growth in passenger numbers hits an all-time high and financial returns an all-time low.
Airlines are facing the steepest loss in a decade with a depreciated rupee against the rising U.S. dollar and fuel prices, a fierce and aggressive competitive environment, and failing airport infrastructure.
This is "expected to push airlines deep into the red" this year, said noted global analytics company Crisil. Consolidation in the industry seems inevitable, reports AINOnline.
"To offset the increase in operating costs, the industry will have to raise average fares by 12 percent. But the aggressive fleet expansion plans of carriers and the race to maintain high passenger load factors will keep competitive intensity high and limit their ability to increase fares," said Crisil ratings senior director Sachin Gupta.
According to Sydney-based consultancy Centre for Aviation (CAPA), Indian airlines are expected to post combined losses of up to $1.9 billion this financial year led by full-service carriers Air India and Jet Airways. Even low-cost carrier IndiGo, the country's largest airline in terms of passengers carried and fleet size, reported its first ever loss in September.
Things didn't go well for financially bleeding Air India, which found no suitors for its partial sale. It is likely to be kept alive as taxpayers' money keeps getting pumped into it.
Conversely, talks are on between Jet Airways, India's second-largest airline in which Abu Dhabi-owned Etihad Airways holds a 24 percent share, and the Tata Group for a majority buy. Tata already part-owns two airlines in the country; it owns a majority stake in Gurgaon-based domestic carrier Vistara jointly with Singapore Airlines and it has a 51 percent share in AirAsia India. Recent reports indicate the Tatas would like to abandon the AirAsia India joint venture and focus on building the Vistara-plus-Jet combination into India's only full-service private airline.
In a letter to its frequent flier program members, Vinay Dube, CEO of cash-starved Jet Airways, confirmed the airline is "in active discussions with various investors to secure sustainable financing. The tough operating environment for the aviation industry continues to impact us and we reported a net loss of [approximately] $190million" in the second fiscal quarter. However, even if the deal were to go through, according to Mumbai-based SBI Capital, "it does not mean that by pumping in capital the Tatas will wave a magic wand and all will be okay. The two airlines presently being run by them are also facing losses."