The aviation industry, once touted as a sunrise sector, seems to have run into turbulence . With all airlines, except Indigo, bleeding over the last quarter, and Kingfisher Airlines facing a severe cash crunch, it will be some time before the sector gets out of the dark cloud.
The figures are distressing. During the September quarter, Jet reported a loss of Rs 714 crore, SpiceJet Rs 240 crore and Kingfisher Rs 469 crore. As for Air India, the less said the better. The national carrier's total loss and debt burden stands at a staggering Rs 67,000 crore.
But there is a silver lining. In September, India was the fastest growing domestic market with 18.4% growth (almost 2.5 times the GDP growth). This, according to the International Air Transport Association (IATA), exceeds China's (9.7%) and Brazil's (7.5%), making it the 9th largest aviation market. What's wrong, then?
Ironically, the growth rate itself. It has led to capacity creation far ahead of demand, leading to excess aircraft seats. "Every airline is trying to fiercely undercut the other with low fares. That's suicidal when they can't even recover costs. Air India's fares went very low but it still continued to pay for lounges, travel agents and various schemes. Other airlines had no option but to follow suit. Now everyone is in a mess. Compete, but for being more efficient," says an aviation ministry official.
The fundamental structure of the airline industry is such that margins are wafer-thin - not more than 3%, so it's difficult to make money, says the COO of an Indian airline. "It is a cyclical industry where there is recovery, downfall and recovery again. But the recovery is very slow. Plus, cash has to be preserved for global uncertainties, high inflation and interest rates, but few have it. An airline owner, therefore, needs very deep pockets," he says. But in today's environment, raising capital is not easy either. This coupled with depreciation of the rupee has added to airlines' financial problems.
20/11/11 Shobha John/Times of India
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