The travails of the Indian aviation sector, in general, and Kingfisher Airlines, in particular, have been in the spotlight over the past fortnight. It is a paradoxical situation.
On the one hand, India is among the countries with the fastest growing passenger traffic (in the mid to high teens). On the other, high costs (primarily that of aviation turbine fuel) and the inability to raise fares even to break-even levels has meant that all the listed players have been posting big losses over the past three quarters.
- Compounding the woes for players such as NACIL, Jet Airways and Kingfisher Airlines is huge debt and massive accumulated losses. Amidst talks of an imminent shakeout, it is noteworthy that Indian aviation is not unfamiliar to churn.
The first round of consolidation happened in the mid-1990s when airlines such as Damania Airways, East-West Airlines and ModiLuft which had opened shop after the ‘open skies' policy of 1991 either shut down or sold out, due to lack of management bandwidth or financial constraints. It was an era of high fares which made air travel a luxury restricted to business executives and moneyed individuals. This scenario continued till the early part of the last decade.
However, the low cost carrier (LCC) model introduced by Air Deccan in 2004 proved a game changer. By offering seats at rock bottom fares unheard of before, it democratised air travel in the country and catalysed rapid growth in passenger traffic. The full service carriers — Indian Airlines, Jet Airways and Sahara Airlines — who till then were operating in an oligopolistic market with high fares and plum profits found themselves at the receiving end and saw market share erode.
The advent of the LCC also set into motion some key structural changes in the sector. Perceiving a burgeoning opportunity in Indian aviation, three more LCCs (SpiceJet, GoAir and IndiGo) and a couple of full service carriers — Kingfisher Airlines and Paramount Airways opened shop during 2006 and 2007.
18/11/11 Business Line
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