Wednesday, November 21, 2018

India’s Airlines Are in Trouble Again. What Will the Modi Government Do?

New Delhi: India’s aviation industry, which has had to historically burn cash to sustain aggressive pricing, has once again hit deep air pockets.

While the crash and burn of Jet Airways has assumed centre-stage in the last few months, most major carriers have reported losses in recent quarters. The red ink comes primarily from higher fuel prices at one end and lower ticket prices at the other, as airlines scramble to get more passengers in a market riddled with over-capacity.

The question now is: will the Narendra Modi government come to the rescue?

On Wednesday, sources told The Wire that the aviation lobby has asked the Centre to help them obtain unsecured credit from airports and oil companies.

There are hints of broader government help on the horizon as well. Last week, Bloomberg reported that the NDA-II government had sought the help of Tata Sons to help bailout Jet Airways. In particular, Tata Sons was reportedly in talks with the Centre about a potential haircut on loans that Jet Airways owed to state-run banks.
While this was denied by aviation minister Suresh Prabhu a few days later, it’s unclear where more sustainable growth is going to come from in the future.
Because mere growth has never been a problem: from a measly 14 million passengers in 2000-2001 to over 140 million passengers by 2017, Indian aviation has seemingly done well.

The problem has been profits. Even market leader IndiGo reported its worst quarterly performance ever in June 2018, down 97% year-on-year.

“For fiscal 2019, airline industry is expected to see a domestic capacity growth of about 20% driven by a faster capacity expansion from Low Cost Carriers. This capacity driven passenger traffic growth is expected to put downward pressure on air fares, despite an adverse movement of crude oil and INR-USD exchange rate,” Hetal Gandhi, director, CRISIL Research, told The Wire.
“Despite being a negative working capital based industry, majority of the players have significant working capital debt on account of losses posted during the past decade,” Gandhi added.
21/11/18 The Wire