Cleared to Land… Into Bankruptcy
Jet Airways, Kingfisher Airlines...what do they both have in common? (Apart from the giant aircrafts and scrumptious treats!) These were airlines that once dotted Indian skies, but now their memory dots our hearts. In-fact over the last 21 years 12 airlines have gone under in India. Even when India is poised to become the third largest aviation market by 2025, why do they keep going under? Not to mention, the robust expectation of year on year growth of passenger demand by 20%. So there’s a demand that the supply can’t keep up with. Yet the supply is dwindling!
Running an airline has costs, envisioning which is difficult to say the least - the paper they print boarding cards on, the tarps keeping everyone in an orderly line, the crew, the aircraft, the parking bay and so much more. The slightest errors in expansion, route planning and crew scheduling can have a domino effect on any airline. It’s no-wonder that consistently profitable airlines in the world can be counted on our fingers. Even for an airline that is flawlessly managed, turning a profit in India is next to impossible.
Fun fact: It’s cheaper to keep an aircraft flying in the air than it is to keep it parked on the ground.
This is for two reasons:
Cost Sensitive Indian market For any industry to make money, the revenue must exceed the costs. Low cost carriers (LCCs) strip down an airfare to the bare essential, sometimes leaving out the “luxury” of check-in luggage. Seat selection and meals are also charged a premium. Brand loyalty takes a back seat for the average working Indian, when they come across an enticing fare. The LCCs have encapsulated most of the market with competitive fares and aggressive on-time performance (OTP). Even for business travellers the consistent OTP precedes the comforts of business class, since after all, time is money.
Regulatory and tariff challenges:
The UDAAN (Ude Desh ka Aam Nagrik) was a scheme set up to incentivise routes between under connected cities. The scheme, while ingenious, has had teething issues and a few flaws have come to the forefront. The biggest being the fare cap of ₹2,500 for 50% of seats available, for every hour of flight. The subsidies in tax and landing fee aren’t able to justify this low fare. Especially if a flight is less than 50% booked.
Fuel makes up 34% of an Indian carrier’s costs, while their global counterparts account for 24.2%, due to the exorbitantly high tax structure in India. While it may not seem as much, with economies of scale in place, it has an astronomical impact.
Fun fact: Paint adds between 275-550 kgs of weight to an aircraft. That is about the weight of 4-8 passengers, just to show off the name of the airline or advertising.
So, what has changed in these unforgiving times of Covid-19?
Well in a nutshell, nothing. It has become a more ruthless, frangible, despotic and loss making industry than ever before. During the lockdown enforced by the government and subsequent embargo on flying that lasted almost two months, the airlines were caught off guard. The idle aircrafts meant huge parking fees at various Indian aerodromes and the high maintenance cost airlines had to incur to put them into storage, besides performing necessary maintenance before putting them back into service.
After flights were allowed to resume, there was a restriction on fares and no respite offered by the government to incentivise travel. The cost of aviation turbine fuel (ATF), although initially slashed by 33%, soon bounced back, to prices higher than before the crisis. The added necessity of doling out PPE kits for passengers and crew, frequent sanitisations and staggered boarding have added to the time needed for an aircraft to be on the ground between flights. These ever-surmounting costs with a meagre passenger demand have added red marks in the account books for all Indian carriers. The demand for cargo isn’t nearly enough for airlines to break even.
The Indian airlines have largely managed to keep on their entire workforce intact, balking the crisis with steep pay cuts and raising fund by sale of stake or aircrafts. As it became clear that, unlike most countries, the Indian government was not going to bail out the aviation sector, airlines have had to down-size their fleets and readjust their expected growth trajectories. Yet the fact that flying is still the safest means of transport even during the global pandemic - owing to the air being replaced every 3-5 minutes on board – continues to give airlines the hope that air travel will bounce back soon. After all, the likelihood of death on board an aircraft is still lesser than when a human being climbs up a flight of stairs.
Fun fact: The list price for a single Airbus A320 aircraft, the workhorse for most Indian carriers, is over US$111 million. Even if an aircraft is leased, similar to a car lease, the costs surmount an unfathomable figure. Take that ₹15.00 vada-pav.
The troubles of India’s “mercenary” aviation business are an amalgamation of how the mixed socio-capitalist Indian economy works. The industry, analogous to mounds of money, is actually one with the most precariously balanced costs. Interestingly, running a loss-making airline is easier than shutting the airline down altogether. From the outside before this pestilential crisis, everything should have been going the industry’s way; robust demand, more route options, fuel efficient aircrafts, sound fundamentals, foreign investments and large order backlogs. Yet the impression of the associated “embellished glamour” quickly breaks down when the fragility of the industry is considered on a whole.