Tuesday, December 29, 2015

For the aviation sector to grow in India, it needs handholding by the policy makers

This year, India’s airlines heaved a sigh of relief as jet fuel prices continued to be benign due to global softening of crude and domestic air traffic grew in healthy double digits. These twin factors helped airlines recoup some of their historical operational losses besides helping them get more bums on seats.
But the relief, though welcome, would likely be quite inadequate to keep the airlines smiling in the coming months as the much-needed policy and fiscal incentives continue to elude them.
Let me throw in some numbers here to illustrate how external factors, but not the Indian government, are helping in reducing airlines’ losses. Industry losses are expected to be $500-550 million for the year ending March 2016, which means a daily loss of close to $1.4 million by all the airlines combined. These are estimates by global aviation consultancy CAPA and are lower than the same agency’s estimates of $680-750 million made earlier in 2015.
India is poised to become the world’s third largest aviation market in about a decade and perhaps it will attain this milestone despite little help from the mandarins in Rajiv Gandhi Bhawan, the nerve centre of aviation policy making in Lutyens’ Delhi. But how will a large aviation market sustain itself if majority of the players in it continue to bleed, either due to legacy issues (which is a major factor in state-owned Air India’s continued bleeding) or due to lack of fiscal incentives?
Why the Indian government has been reluctant to help airlines become viable can be easily understood by a simple truism: India has always seen flying as a luxury, never really coming around to the point that in today's times flying has become a necessity.
Well over a crore Indians take a train to their destinations each day when a mere 1.8-2 lakh are flying on the domestic network. This state of affairs is at least partly due to the heavy Central and state taxation that is levied on jet fuel – in fact, India is one of those countries which taxes jet fuel the highest in the world. Of course, the preference for trains is also due to the vast railway network compared to the more metro focused air services in India.
28/12/15 Sindhu Bhattacharya/F.Business
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