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Politics & Governance

Aviation Industry in Crisis

NEW DELHI: The aviation industry in the country is in the throes of a crisis. The flashpoint has been the closure of the iconic Jet Airways, something that could not have been considered possible even a year ago. This is an airline that at one point of time had commanded 40 per cent of the aviation market share. It was considered a stable entity that survived while others launched at the same time or even later like Damania, Modiluft, East West Airlines and Kingfisher became unprofitable and had to close down. 
The failure of Jet Airways is not only linked to the poor management of the company headed by Naresh Goyal but also to the external environment that is affecting operations of all airlines in the country. The question is, whether other companies will be able to weather the crisis or also collapse in thesame manner.
As far as Jet Airways is concerned, its sudden unraveling over the last six months occurred due to mounting debt that had begun when it had acquired Air Sahara in 2007. Subsequently, it was not able to fend off the competition from the new budget carriers in the field like Indigo, SpiceJet and GoAir. It remained a full service airline at a time when fuel costs were rising rapidly and the rupee was also depreciating. Fuel costs have now reached nearly 40 per cent of total operating costs for airlines. In addition, Jet had to offer lower fares to beat the competition while also having the burden of the new budget carrier which was renamed as JetLite.
The demise of Jet has been due to multiple factors. One of these is reported to be the hands on managerial style of Naresh Goyal who was always considered a controversial figure due to his proximity to those in the top echelons ofgovernment. Ratan Tata famously blamed Goyal for not being able to launch a new airline in partnership with Singapore Airlines (SIA) in the mid-90s at the time of the United Front government and then later again during the period of the NDA government. It is indeed an irony that Vistara, the joint venture between Tatas and SIA was recently considered as a potential suitor to take over the failed airline.
Jet, however, is not the only airline in the doldrums. The government-owned Air India is saddled with enormous debt and strenuous efforts have been made over the past year to sell it to a private investor. There have been no bidders forthcoming. However, leaving the government with no choice but to try and revive the airline and bring it to a condition where it can become attractive to buyers. Air India is also a full service airline with an enormous outgo on staff salaries owing to excess employees. Some of the elements of the revival plan include monetizing the wide ranging real estate assets of Air India including sale of its iconic Nariman Point tower and hiving off its low cost subsidiary and those dealing with engineering and ground handling services.
Even so, Air India is basically limping along till it is finally privatized. It has amarket share of about 13 per cent, slightly lower than that of Jet till last yearwhich was about 14 per cent. The biggest player in the market is Indigo, which has a whopping 42 per cent share of the air travelers in the country. 
Market share of other airlines like Spice Jet is about 12 per cent while Vistara and GoAir have about 9 per cent each. All these equations will now shift significantly owing to the closure of Jet which will also lead to a hike in prices of air travel. The Civil Aviation Ministry has assured that it will keep a cap on air fares but it looks difficult as the summer is upon us and air travelers will be going on holiday en masse.
While there is no dearth of demand for air travel, the fact is the airlines are still struggling to stay afloat simply because of the extremely high cost of fuel. Crude oil prices are rising in international markets and this is leading to a matching rise in costs of aviation turbine fuel for airlines. The airline industry has been demanding for some time that ATF should be brought under the purview of the Goods and Services Tax (GST) instead of being governed by the old system of taxation. By bringing ATF under GST, the airlines will get the benefit of input credit which will save them thousands of crores annually.
It is interesting that though the airline industry is going through a crisis, it is also looking at huge opportunities in the future. India is the fastest growing market for aviation in the world with a 17 per cent growth last year. It is estimated that the sector will receive investments of about Rs. 35000 crores in the coming years. Also there is a huge demand for skilled personnel in the aviation industry. 
Even though the closure of Jet Airways has meant job losses for about 16000 staff members, many of them will be absorbed by other airlines which are desperately looked for trained employees. There is an enormous shortage of pilots and cabin crew in airlines like Indigo and others which are steeply expanding their fleets and hence need more staff.
On the regional airlines front, the much-vaunted Udaan scheme launched in 2016 has yet to live up to expectations. The aim is laudable, to enable those in small towns to be able to fly to other destinations at a reasonable cost. 
Unfortunately, the small airlines that should have helped to achieve the objective have not been able to gear up to fulfill targets. The aviation industry is thus at a crossroads. It is facing a calamity as well as the prospects of high growth in the future. The fate of the industry will now depend partly on government policies on oil prices as well as the industry’s ability to bringabout more effective management so that airlines can avoid the fate of Jet Airways. 

By TIS Staffer
the authorBy TIS Staffer

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