No ‘High-flyer’

The domestic airline industry has been in the throes of a crisis with Jet Airways, failing to obtain emergency funding from lenders to pay for critical services. At one point India’s largest private airline in terms of market value, Jet Airways is now forced to ground its operations temporarily. The airline had been defaulting on payments to lenders, suppliers, lessors, and employees. With lessors taking over aircraft and airport slots and flying rights being allocated to rivals, the outlook for the beleaguered airline appears to be grim, even though the lenders led by the State Bank of India (SBI) have opened a late bidding process for new investors.

But, this situation has set the alarm bells ringing: Is there something fundamentally wrong in the modus operandi of the commercial airlines in India? Although the airline business is characterised by low profit margins, external factors also influence operating profits in India, which include the volatility in the exchange rate value of the rupee against the dollar, and the aviation turbine fuel costs buoyed up by high taxes. But, the specific reasons are more to do with the nature of price competition in the aviation market along with an expansion of capacity that has threatened the operations of full service carriers like Jet Airways. An aggressive expansion of fleet coupled with predatory pricing had led to mounting losses. Even then, efficiently managed low-cost carriers have succeeded in staying afloat. IndiGo, now India’s largest airline, reported a net profit of ₹ 2,24,237 crore in the financial year ending 31 March 2018.