Richard Branson is known to have quoted that the easiest way to become a millionaire is to start with a billion dollars and set up an airline. The airline market in India has taken quite a hit during the times of the COVID-19 due to flight suspensions all over the world, but this downtrend had already started a long time ago.
The airline industry in general is looked upon as a very unprofitable industry by several investors, both in India and abroad. Whether it is Richard Branson or Warren Buffet, they all seem to have a very negative outlook on the industry as a whole. However, figures have shown that individual mobility has been going up exponentially over the years, which means that new and cheaper means of transports will soon be required. But will those new means of transports be airlines? Can they survive these tumultuous times?
At this stage, it becomes important to analyse some of the important problems that the Indian airline industry is facing, and this analysis has been done below:
Low Demand
While India has often been called the largest market for airlines, and this has also been backed by numbers and predictions, this demand is now reducing. In 2018, the International Aviation and Tourism Authority had predicted that India would become the third largest aviation market in the world by 2024, with double digit growth in both the demand for airline tickets and the actual air traffic.
While this prediction held true for 2018, and there was a 18.9% growth, this came down in 2019 with only a 5.1% increase in air traffic. With the suspension of flights for the better part of the first half of 2020, this number is expected to go down further this year, thereby compounding the problem even further.
Governmental Regulations
The regulations by the Indian government have also harmed the airline industry. Most of these have been brought on by parliamentarians who have, at best, a very limited understanding of the airline business. This is evident from the fact that despite no clear evidence of any price manipulations or collusions, politicians have been trying to reduce airline prices even further by setting ceilings.
And this is despite the fact that several airlines have gone bust in the past few years, including Jet Airways and Kingfisher Airlines. Not to mention that Air India is in severe loss, and is currently running only on taxpayer’s money.
Another major regulation that was earlier causing a wide variety of problems but has since been scrapped was the 5/20 rule. Under this, any domestic airline had to be operational for at least 5 years and have 20+ aircraft before they could begin international flights. However, recently the rule was scrapped and replaced by the 0/20 rule, wherein airlines only now need 20+ aircraft to start.
Low Profitability
For airlines, or any other business to survive and thrive, profitability is the key requirement. And this profitability is being threatened by a variety of different factors, the first of which is the compulsory cap that has been placed on ticket prices of flights under 500 kilometres or 1 hour. The tickets for these flights have been capped at $20 only, making such routes unattractive for most airlines. Not to mention the bad airport infrastructure in most areas, and the lack of capacity of the airports to deal with increased flight volumes has also hampered the ability of the airlines to remain profitable while still ferrying customers to a variety of destinations.
Perhaps the greatest blow to airlines across the country was the recent hike in airline fuel prices. Recently in June 2020, the Indian Oil Corporation announced a 50% increase in the prices of Airline Turbine Fuels (ATF), thereby pushing up cost of operations even further for the airlines, and cutting into their profit margins. Several industry leaders, including Nishant Pitti, who is the CEO of EaseMyTrip have spoken out against the rise, saying, “Airline industry has got no relief from the government in this crisis and now the ATF price hike only adds to our woes.”
Research has shown that over 63% of residents of the United States prefer to travel by car instead of by plane. Despite the longer time, they find it too be more convenient, cheaper, and most importantly, comfortable. Due to the coronavirus and the rapidly increasing difficulties that are being faced by the Indian airlines as well as those who regularly use these airlines, this trend might come to India as well. Already there has been a shift in the preferred vehicle of Indians for personal mobility over the years. More and more Indians are opting for cars and two-wheelers over buses and trains, and this does not bode well for the shared transportation sector.
Thus, the airline industry is in a bit of a tough spot at present, and based on how the government and other stakeholders react, it could go either way. On one hand, commercial flight sales are declining due to fear of the virus, on the other hand, chartered flights are becoming more and more popular among the rich as a means of safe international travel during these times. It remains to be seen which path the industry will take.
Inveskia 