Thursday, January 19, 2012

Aviation Industry India '11

Hi everybody....!!
There are very important issues which are running at the same time. Of them, i would like to post an important topic is the Aviation crisis 2011.

Aviation Industry in India is a significant one among those industry segments that have experienced a phenomenal growth across the globe over the past years. The open sky policy of the Indian government is one of the key factors that have allured international players into the aviation industry in India. Since long, the aviation industry in India has been growing in terms of number of air travel firms and number of aircrafts. Rapid economic growth in India, especially in last 7-8 years has made air travel affordable to more and more Indians. Owing to the increasing number of low-cost carriers like SpiceJet, Paramount Airways, GoAir, IndiGo Airlines, there has been a spurt in the number of domestic air-travelers in last few years. The growth has been so much so that Delhi-Mumbai route is now among world's busiest routes. To meet India’s increasingly growing air traffic the airlines players are also looking for expansion of their operation. Today, Indian aviation industry is passing through a bad phase. Though, Indian carriers flew over 55 millions domestic passengers between January and November against 47 million in the like period of last year, they found it extremely difficult to continue with their expansion plans and existing operations, amid rising fuel prices and other policy constraints.

Except the low-cost airline IndiGo, which continued to earn profit, all the other airline players faced tough times and many of them had to cut employee’s salary owing to their bad financial conditions.

The crisis became more evident recently when major private player Kingfisher Airlines cancelled its operation on a number of routes owing to the losses it was incurring on it.  The government is also under pressure as the state-run Air India itself is reeling under a huge debt, estimated at over Rs 40,000 crore. A 50 to 60 per cent hike in the jet fuel prices, which account for 40-50 per cent of an airline’s operating cost, has made it difficult for airline players to make their operation profitable. The airline players are blaming central government for imposing unreasonable and unbearable duties on jet fuel prices, and demanding a cut in the taxes levied on the same.

Despite a 17 per cent growth in passenger traffic, India's civil aviation industry was hit by rising jet fuel prices and interest costs, which ate into the margins of carriers. High taxes on jet fuel and equally high airport charges were the major heads of cost for the Indian carriers, with the global airlines' body International Air Transport Association (IATA) estimating that fuel costs accounted for 45 per cent of the total costs, compared with 30 per cent for global carriers.

A midst the growing concern over an emerging crisis in aviation sector, industry honchos are mounting pressure on government to either relax taxes on ATF fuel or announce a bailout package for the ailing airlines.

In November 2011, carriers facing financial trouble approached Prime Minister Manmohan Singh seeking his intervention to at least get aviation fuel and loans at cheaper rates. The industry has accumulated losses of nearly Rs 15,000 crore in 2010-11, up from Rs 7,038 crore in 2009-10. Leading the pack is national carrier Air India followed by private sector carrier Kingfisher Airlines. The losses notched up these two giants played spoilsport for the Indian aviation sector in 2011.

Yet, the share of air-travelers in India is less than 2 per cent and the mode of transportation for rest of the people remains mass transit systems like Indian Railways, and road transport.

Given the primary objective of a democratic government to focus on inclusive growth, the government needs to invest more on the mass transit systems. While government should positively respond to the demands of airlines players by rationalizing its policies, it should not consider any bail-out package to the ailing players. Instead the money it might consider for a bailout should be spent on building and upgrading the rural and urban mass transit systems. The airlines players should also think of increasing their efficiency and by that mean they should find ways to minimize their cost.

While government should keep focused on the mass transit systems in the country, it is also obliged to back the growth of the aviation sector that is a major indicator of country’s growing economic status. The government should definitely look into problems of the industry and consider measures like rationalizing taxes and lowering duties on jet fuel prices to help the ailing industry.
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                                                                                                 --- Koundinya.K

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