Professional Documents
Culture Documents
By Harsh Kalra
Table of Contents
1 Statement of Problem...................................................................3
5 Bibliography..................................................................................7
Table of Figures
1 Statement of Problem
Indian Aviation industry has been marred with a number of problems which can be
attributed to a number of reasons. Despite being part of the one of world’s largest and
fastest growing markets, a number of issues ranging from tough competition, market
environment, to regulatory obligations, have had a very adverse impact on the profitability
and long-term sustainability of the industry.
India’s air passenger traffic has grown by at least 16% annually over the past decade.
In 2000-01, it stood at 14 million passengers whereas In 2017, Indian airlines flew nearly
140 million passengers, most of them domestic. We can observe good YoY, MoM growth
and passenger loading[CITATION DGCASTATS \l 1033 ]
The Indian aviation industry employs 7.5 million people in value chain and tourism and
adding $30 Billion to GDP. [ CITATION Bri \l 1033 ]
Despite this, Growth has been largely profitless. The Centre for Asia Pacific Aviation
predicts consolidated industry losses of between $430-460 million in FY19.
It thus becomes imperative to understand the issues and identify the solutions to alleviate
the stress on the Indian Aviation Sector
- To understand the status quo of various aviation carriers and how the aforementioned
issues relate to specific challenges.
Rupee Depreciation:
Rupee Depreciation Vs Dollar impacts various airlines as key costs like fuel, maintenance,
parking costs, overhaul costs, lease payments, etc. are typically priced in Dollar. Also, for
passengers flying international routes, flying could be an expensive affair depending upon
the strength of Indian Rupee Vs US Dollar. This impacts day-to-day operating, and
profitability of the carriers.
The ATF prices comprise close to 40% of the overall aviation costs. These prices are 40-
50% more than several contemporaries of the Indian carriers. [ CITATION RhikK \l 1033 ].
A key factor to this is the high State Tax and Excise Rate on the ATF. It is also understood
that it could attract a GST of up to 28% once it is included under the GST regime.
Intense Competition:
An Intense competition in the Indian Aviation sector, which is very price sensitive, has led
to a number of carriers to become grounded or merge/ be acquired by other firms. The
surviving carriers have very little headroom to play and Low-Cost Carriers are mainly the
ones expected to survive, as they have over 87% share in domestic aviation.
Policy Issues:
As part of the new ICAP (Indian Civil Aviation Policy), various initiatives like UDAN, RCS,
and RTG have forced the carriers’ hands on flying unprofitable routes and price capping.
This, in addition to the huge costs, has made it difficult for the carriers to get by.
Rising Costs:
In addition to the costs incurred on other ends, Indian aviation industry has to hire pilots on
premium to cater to increased capacity. The maintenance and repair taxes on Indian
Carriers are also very high in line of 18% which is among the highest in the world.
Below given infographic gives a status quo of each major carrier in the Indian Aviation
industry and how some or all of the above-mentioned factors are impacting them:
- Policy Liberalization and Stimulus can help aviation grow further at 9.1% compared to
3.8% now.
- Since India is doing well on both TTC (34th) and EODB (63rd) ratings, this could further
help in increasing the growth of the sector.
- The ICAP should make further provisions for relaxation on non-performing routes and
make decisions based on Erlang traffic per route, to ensure that at least cost recovery
should be enabled for carriers.
- Taxation, especially Maintenance and Repair and ATF levies should be curtailed as
much as possible as this could help the Airlines curtain a huge chunk of costs.
5 Bibliography