Wednesday, September 26, 2012

Indian aviation: only itself to blame

Will the Indian aviation industry ever learn? Last year, as beyondbrics reported, the industry was is turmoil after state carrier Air India initiated a price war that caused the airlines to spiral into a $20bn collective debt hole.

Now it seems, they’re at it again. Air India started the cutting, announcing its jaldi jaldi scheme last Thursday, an early bird program that offers up to 40 per cent discounts on certain routes booked in advance. Let another price war commence.

The scheme is a response to the aviation minister, who asked the state carrier to provide a plan to increase its market share, which has fallen to 18.2 per cent, putting it in fourth place among India’s airlines.

By Wednesday, Jet Airways and number-one carrier IndiGo had both announced similar schemes, with SpiceJet expected to follow suit shortly.

Considering that the fuel sales taxes that have hurt the industry remain high, fuel prices are close to all-time highs, and airport charges continue to increase, airlines have no business slashing rates, analysts said. But intense competition fueled by a drop in demand has forced them to cut – and that’s not good news for anyone, and is unlikely to entice any foreign airlines to take advantage of the new policy allowing them to invest up to 49 per cent in local carriers.

“If one [airline] goes at it with such a scheme the others have to [follow] – you can’t fly with an empty airplane,” said Sharan Lillaney, analyst at Angel Broking. “People are price sensitive, they will go for the cheaper ticket. So one [airline] will follow another, and the next will follow that one and everyone will end up making losses again – this is just not sustainable.”

From January to August, Indian airlines carried 39.8m passengers, in an increase of just 0.5 per cent over the same period last year, according to data from the Directorate General of Civil Aviation, compared to the double digit passenger growth the industry once saw. Meanwhile, flights are flying at around 70 per cent capacity, and closer to 60 per cent for some airlines, and a cheaper ticket sold is better than no ticket at all.

That’s good for consumers, but bad for business.


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