The troubles of India’s aviation industry

Source: The post is based on the article “The troubles of India’s aviation industry” published in The Hindu on 11th May 2023.

Syllabus: GS 3 – Infrastructure: Energy, Ports, Roads, Airports, Railways etc.

Relevance: About the challenges faced by Indian commercial aircraft operations.

News: After low-cost carrier GoFirst’s insolvency, the aviation safety regulator Directorate General of Civil Aviation (DGCA) has directed the airline to stop selling air tickets immediately.

What are the reasons behind Go Air’s insolvency?

Must read: Indian aviation industry: Potential and challenges – Explained, pointwise

How big is the Indian aviation sector?

As per the Civil Aviation Ministry, India will have more than 140 million passengers in FY2024 alone. There are currently 148 airports in the country and it is the third-largest domestic market in the world in terms of seat capacity. As of March 2023, IndiGo remained the domestic market leader with 56.8% of the market share, followed by Vistara (8.9%) and Air India (8.8%).

Does the Indian aviation sector financially viable?

Financial trouble has led to the folding of major airlines in the past few decades. Around seventeen airlines, domestic and regional, have exited the market. In 2019-20, IndiGo was the only airline to make a profit, while all other players posted losses. This is because,

– The consolidation of four carriers including Air India and Vistara under one umbrella is going to make it tougher for smaller airlines to capture the market.

-Air India consolidation will make around 75-80% of the market be captured by Indigo and Air India combined, leaving just about 20% for players like SpiceJet, GoFirst (if it revives), and the newest entrant Akasa.

-About 80% of India’s total commercial fleet is leased, according to PwC. However, leasing ends up adding high costs to operations as these leases of about six months each are denominated in U.S dollars. Leasing costs alone make up nearly 15% of the revenues of Indian Airlines, except Air India which owns a large part of its fleet.

The costs of these leases go up further if the Indian rupee depreciates during short and long term global financial developments.

– There are high costs associated with the training of airline crew. Besides, the crunch in pilots is also reflective of the inadequate number of Flight Training Organisations.

Read more: Challenges faced by Indian commercial aircraft operations

What are the government initiatives to boost India’s aviation industry?

Aviation policy is dealt with by the Ministry of Civil Aviation under the legal framework of the Aircraft Act 1934, and Aircraft Rules 1937.

The DGCA is the statutory regulatory authority which comes in for issues related to safety, licensing, airworthiness, and so on.

Must read: Aviation Sector in India: Status, Opportunities and Challenges – Explained, pointwise 

What are the issues with government policy in the Indian aviation sector?

India has not kept pace with modern technology in aerospace and increasing costs to the industry which ultimately affects passenger growth.

High taxes on Aviation Turbine Fuel (ATF): According to estimates, while India’s airfares are 15% below the break-even point. Heavily-taxed ATF alone contributes to the single biggest expenses of carriers, amounting to anywhere between 40-50% of operational expenses.

Some Indian States impose provincial taxes of as much as 30% on jet fuel. This also makes shorter flight routes unsustainable for smaller airlines.

Barriers to entry and growth: Indian aviation policy has posed barriers to entry and growth and also has not affected players uniformly.

For instance, from 2004 to 2016, new airlines in the country had to be in operation for at least five years and have a fleet of at least 20 aircraft to be able to fly internationally. The National Civil Aviation Policy (NCAP) in 2016 removed the five years of domestic experience. Many new players want this condition to be removed. But the older airlines oppose such a reversal.

Airport fees: Airlines have to bear costs in terms of airport fees for the use of airport facilities including aircraft landing, freight and other charges related to the use of airport infrastructure such as runways and passenger terminals.

What should be done?

The government have to plan and make leasing companies to set up shop in India. Not only that the policies should make a proper functioning of leasing hubs. Till then the expensive lease rents and repayment feuds will stay.

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