Private Airlines In India Are Failing Their Customers And Taking Them For A Ride, Literally; Why Are The Private Airlines In India Falling Short Of Expectations?

India’s aviation sector has witnessed a disheartening trend of private airlines failing to meet customer expectations. The list of failed Indian airlines, including prominent names like Kingfisher and Jet, continues to grow.

Amidst this grim scenario, Anupam Mittal, known for his association with Shaadi.com and Shark Tank India, recently expressed his frustration over last-minute flight cancellations and rescheduling by airlines such as IndiGo and Vistara. However, this is a sentiment that will be echoed across the board by many fliers in the current scheme of how things are in the aviation sector.

The Epic Failings
With a long list of failed airlines in the country’s aviation history, the sector has gained the dubious title of a “graveyard of airlines.”.
The inconvenience faced by passengers, as highlighted by Mittal, emphasizes the need for regulatory intervention to address these concerns.

Unpaid dues have become a recurring issue in India’s private airline sector, contributing to a vicious cycle of financial struggles. Failure to settle outstanding payments not only tarnishes the airline’s credibility but also results in critical consequences such as maintenance shortages.

The industry has also witnessed Go First blaming its troubles on engine issues and unpaid dues.
Go First cited engine issues and deferred maintenance work during the COVID-19 pandemic as contributing factors to its current challenges. This situation highlights the priority given by engine makers to airlines that consistently meet their financial obligations. With demand picking up, airlines that have paid their dues on time are given precedence, exacerbating the maintenance capability gap for those struggling with unpaid debts.

A History of Failures
Go First’s predicament is not an isolated incident but rather a reflection of the broader trend in India’s aviation sector. Over the years, the industry has witnessed several airlines, both established and emerging, succumb to heavy losses or get acquired. The list of failed airlines, including EastWest, Damania, MDLR, Paramount, Kingfisher, Air Costa, and Jet, illustrates the challenges faced by private carriers.

These repeated failures raise concerns about the sustainability and viability of the private airline business model in India, casting a shadow of uncertainty over the industry’s future.

Customer Discontent and Last-Minute Cancellations
Anupam Mittal’s recent accusation against domestic airlines, particularly IndiGo and Vistara, sheds light on customer grievances. He highlighted a recurring pattern of last-minute flight cancellations attributed to insufficient passenger load.
Mittal’s personal experience of a flight rescheduling during a family funeral underscores the emotional toll and inconvenience passengers face, particularly senior citizens.

Thus, the lack of transparency and accountability, with airlines conveniently labelling such cancellations as “rescheduling,” further compounds customer frustration.

What is the DGCA Doing?
Mittal’s plea to the Directorate General of Civil Aviation (DGCA), India’s aviation watchdog, reflects the urgent need for regulatory intervention. The DGCA, as the governing body, holds the responsibility to ensure a fair and customer-centric aviation environment.

Addressing issues such as last-minute cancellations, rescheduling practices, and the overall reliability of private airlines is paramount to safeguarding passengers’ rights and improving the industry’s image. Timely actions by the DGCA to investigate these claims and enforce stricter guidelines can help restore confidence in the private airline sector.

However, what are the problems that the airline industry in India is facing, and why are they not up to the mark?

Firstly, high fixed costs are to be blamed.
The aviation industry in India carries high fixed costs that present ongoing challenges to private airlines. The lengthy lead time for ordering planes necessitates accurate demand forecasting, as airlines must commit to these expenses years in advance.

If demand falls short of expectations, airlines still bear the cost of the ordered planes, maintenance, and leasing arrangements to meet sudden surges in demand.
Airport costs, especially for low-cost airlines, remain high due to limited cheaper airport options. Likewise, the heavily regulated nature of the aviation sector in India adds to operating costs.

Secondly, the lack of profitability and industry outlook has created a major dent.
Achieving profitability in the airline industry is no easy feat. Despite high airfares, the Indian airline industry is expected to report substantial net losses. The demanding nature of the business, intense competition, and customers’ preference for low fares contribute to the financial challenges faced by airlines.

Convincing customers to pay extra for enhanced services is a daunting task, further straining profitability. As Warren Buffett once noted, airlines epitomize a business that requires significant capital investment but struggles to generate substantial profits.

Indian airlines find themselves trapped in a cycle of profitless growth, where losses from core operations are compensated by ordering more aircraft and engaging in sale and leaseback arrangements. This precarious situation restricts the industry’s ability to thrive.

Thirdly, it is the question of the soaring cost of air turbine fuel (ATF).
With ATF accounting for a substantial portion of operating expenses, the industry is vulnerable to wild swings in fuel prices, often influenced by global factors.
Moreover, the heavy taxation imposed on ATF in India further aggravates the financial burden on airlines.

Air turbine fuel, comprising nearly half of the operating cost in aviation, has experienced a staggering surge in prices, escalating by approximately 60% to 70% in recent years.
These fluctuations in international oil prices pose a significant challenge to airlines, disrupting their otherwise stable operations. Such volatility creates an inherent instability within the industry, as wild swings in ATF prices can wreak havoc on an airline’s financial viability.
When airlines accumulate unpaid dues, oil companies often enforce a cash-and-carry basis, further worsening the already precarious situation.

Fourth on the list is Taxation Woes, High VAT on ATF.
In India, ATF is subjected to heavy taxation, with states levying a value-added tax (VAT) that can be as high as 30%.

Aviation Minister Jyotiraditya Scindia personally corresponded with 22 chief ministers to alleviate this burden, urging them to reduce VAT rates. He argued that lower taxes would benefit the states themselves, as it would attract a higher number of flights, resulting in increased refuelling revenue.

Accordingly, several states have responded to this call by reducing VAT on ATF. However, there are growing demands to include ATF under the Goods and Services Tax (GST) regime to establish uniformity and enhance price stability.

Fifth is the impact of an appreciating Dollar; as a significant portion of airline expenses, including jet fuel, lease payments, maintenance and overhaul costs, and aircraft purchases, are denominated in dollars, an appreciating dollar poses financial challenges for Indian airlines. When the rupee depreciates against the dollar, it drives up day-to-day operational costs, reducing profit margins and cash balances.

Additionally, an appreciating dollar leads to higher prices for overseas tickets, potentially dampening demand and squeezing margins further.

What Can Be Done – Private Airlines

The aviation business is a capital-intensive sector that requires substantial investment and patience. Despite the allure of the industry, profitability remains elusive.
In India, the aviation sector faces additional vulnerability due to its limited growth and low per capita flying. Many private airlines in the country have ceased operations within five years. Airlines find themselves caught in a cycle of profitless growth, accumulating losses from core operations, and funding them through the sale and leaseback of planes. Even well-run airlines struggle to turn a profit, relying on non-aeronautical activities for additional revenue.

Import Dependency and Tax Reduction as Solutions; with India heavily reliant on imports to meet approximately 85% of its oil needs, reducing taxes on ATF becomes imperative for achieving price stability and supporting the airline industry.

By decreasing the tax burden, the government can alleviate the financial strain faced by airlines and promote a more favourable business environment. Lower taxes would not only ease the impact of price fluctuations but also contribute to the growth of domestic airlines.

Again, bringing ATF under the GST regime would streamline taxation and ensure consistency across states. This uniformity in pricing would provide a more stable foundation for airlines, enabling better financial planning and reducing the industry’s vulnerability to sudden shocks.

Thus, overcoming the financial challenges in the Indian aviation industry requires addressing fare caps, reducing costs, stimulating demand, and implementing sustainable business models. Only through such measures can airlines strive for profitability and long-term success.

The Last Bit: The struggles private airlines face in India are multifaceted and deeply ingrained in the country’s aviation landscape. Issues such as fuel prices, fluctuating demand, high fixed costs, government regulations, and overall low profitability contribute to the industry’s challenges.

Tackling these obstacles necessitates a holistic approach, encompassing policy reforms, tax reductions on aviation fuel, stable exchange rates, and a conducive environment for private airlines to thrive. The Indian aviation sector must learn from past failures, implement strategic measures, and foster an ecosystem that supports sustained growth.

Private airlines must prioritize customer satisfaction, improve operational efficiency, and build robust financial foundations to navigate the turbulent skies.

A united effort involving industry stakeholders, regulatory bodies like the Directorate General of Civil Aviation (DGCA), and the government is imperative to ensure a healthy and competitive aviation landscape in India. By addressing these fundamental issues, the private airline sector in India can aspire to provide a seamless and reliable flying experience, restoring the faith of its customers and transforming the current narrative of disappointment into one of trust and satisfaction.