Monday, December 03, 2018

Why India’s airlines keep struggling

Anyone puzzled by how the Indian economy manages to grow swiftly while somehow failing to be prosperous could do worse than look at its airlines. Over the past four years, passenger growth in India has been rapid: The number of flights taken has increased between 15 and 20 per cent per year. Demand growth this year is likely to be the world’s highest. Yet, almost every Indian airline is struggling.
Consider Jet Airways Ltd., India’s oldest private airline. It’s suffered losses for three consecutive quarters now; its cumulative current liabilities have climbed to $2.2 billion. It is struggling to pay pilots and has reportedly failed to make payments to the owners of its leased aircraft. It’s even been difficult for it to pay airport fees. Another airline, SpiceJet Ltd., has been in the red for two quarters and is also delaying payments to the Airports Authority of India. And even the market leader, the much admired IndiGo, declared a quarterly loss recently for the first time since going public in 2015.
It is easy, perhaps, to blame the sector’s fragility on variables beyond airlines’ control. When the price of fuel goes up, Indian airlines make losses; when the rupee depreciates, Indian airlines make losses. And, of course, aviation worldwide is famously crisis-prone. But there’s something special, surely, about Indian aviation, which seems to be in a nosedive even as demand is growing faster than anywhere else.
The truth is that the sector has also been weakened thanks to a combination of errors by both the private sector and, crucially, the government. Companies have lobbied as if their lives depended on it; governments have intervened as if their reelections depended on it. The consequence is that, for decades now, market forces have been stifled in the sector.
Even Jet Airways has profited in the past off government action. 24 per cent owned by Abu Dhabi-based Etihad PJSC, it benefited hugely from a controversial decision by the government to multiply the number of seats permitted between Indian airports, and Dubai and Abu Dhabi. This gentle treatment was notably different than that handed out to Jet’s biggest domestic rival for a decade, Vijay Mallya’s Kingfisher Airlines, which was denied the right to stop and refuel its long-haul flights in the Gulf — something that would have sharply reduced fuel bills and perhaps kept it flying longer.
03/12/18 Mihir Sharma/Bloomberg/New Indian Express