Why is the Indian aviation industry in red?

The Indian aviation enterprise has been impacted through many troubles ranging from high fuel prices to monetary slowdown, lower airfares in step with experts.

According to Ministry of Civil Aviation’s data, reviewed, Indian airways has recorded operating losses of Rs 6,845.78 crore all through the primary 8 months of this  financial  year, its highest since FY15.

Even although there are 4 months left for the financial to end, the entire  operating  expenses  incurred by means of the Indian airlines is over Rs 88,010 crore in  comparison  to Rs 91,232 crore the preceding financial year.

According to Hetal Gandhi–Director, CRISIL Research, approximately 35-40 in line with cent of the operating costs for the Indian aviation enterprise are driven by gas prices. Additionally, 20-30 consistent with cent of the operating prices are greenback-denominated. This indicates substantial exposure to volatility in raw material prices. “The increase in the rate of the greenback changed into an added fee to the airlines”,she explained.

Central Excise Duty on Aviation Turbine Fuel (ATF) has been reduced to 11 per cent on October 11, 2018, from 14 per cent.

Value Added Tax/Sales Tax levied on ATF by various State Governments has also been varied by them from time to time. Basic Customs Duty of 5 per cent is levied on import of ATF with effect from September 27, 2018.

According to the MOCA data, during the April-November period, Central government collected Rs 2,540 crore in excise duties and Rs 229 crore as customs duties. This was a 1732.8 per cent increase from FY15, when the excise duty collected for the whole year was Rs 1,063 crore and customs duty was Rs 58 crore.

Abhilash Varkey Abraham, Research Analyst, Aerospace & Defense, Frost & Sullivan said that factors like overexpansion and crippling debts increase overall operating costs.

“The uncertainty in the sector can potentially affect airlines over the first half of 2020. Addressing these issues combined with an uptick in passenger travel and airline capacity can see the industry stabilizing in the second half of 2020,” Abraham added.

Ashish Nainan, aviation analyst with CARE ratings is concerned that after Jet Airways’ demise, all airlines added capacity. The overhead cost of additional fleet and new aircrafts meant, the losses only swelled for the incumbents. If that was not enough, the deep-discounted airfares were an added burden for the airlines.

He believes “that the lack of pricing power has been the single most vital reason behind the mounting losses of airlines in the country.”

80 per cent of the Indian aviation market is predominantly low-cost airline market. With a dominance of one single airliner holding 45 per cent market share. “For budget airlines, high passenger load factor (or PLF) along with stable passenger yield becomes is critical for breakeven or profitable operations.”

Will the sector stabilise?

According to a recent CAPA report, this a short-term dip. The financial performance expected to normalise from 3QFY2021. “Unless the issues around fleets/ aircrafts is not solved, the losses are expected to continue for the sector for atleast the next two quarters.” Nainan added.

Nainan added that while the sector may stabalise gradually, the expansion will be an issue for the majority of the sector. “Especially the international routes would come at a much slower pace than what is required,” he pointed out.

Abraham explained that in the current negative scenario for the industry, airlines will need to prioritize profitable routes over increasing market share and set sustainable pricing measures. While Nainan said that streamlining of the fleet, addressing the issue around engines and the resultant grounding of fleets will be vital. Along with this, airlines will have to work upon a strategy that would reduce cancellations, amounting to lesser the mounting costs.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s