INSUBCONTINENT EXCLUSIVE:
Anyone puzzled by how the Indian economy manages to grow swiftly while somehow failing to be prosperous could do worse than look at the
state of India's airlines
Over the past four years, passenger growth in India has been rapid: The number of flights taken has increased between 15 and 20 percent per
Demand growth this year is likely to be the highest in the world
Yet the industry itself hasn't benefited
Almost every Indian airline is struggling.Consider Jet Airways Ltd., the oldest private airline in India
It's suffered losses for three consecutive quarters now; its cumulative current liabilities have climbed to $2.2 billion
The airline is struggling to pay its pilots and has reportedly failed to make payments to the owners of its leased aircraft
It's even been difficult for it to pay its airport fees
Another airline, SpiceJet Ltd., has been in the red for two quarters and is also delaying its payments to the Airports Authority of India
And even the market leader, the much admired IndiGo, declared a quarterly loss recently for the first time since going public in 2015.It is
easy, perhaps, to blame the fragility of this sector on variables beyond airlines' control
When the price of fuel goes up, Indian airlines make losses; when the rupee depreciates, Indian airlines make losses
And, of course, aviation worldwide is famously crisis-prone
But there's something special, surely, about Indian aviation, which seems to be in a nosedive even as demand is growing faster than anywhere
else.The truth is that the sector has also been weakened thanks to a combination of errors by both the private sector and, crucially, the
Companies have lobbied as if their lives depended on it; governments have intervened as if their reelections depended on it
The consequence is that, for decades now, market forces have been stifled in the sector.Even Jet Airways has profited in the past off
The airline, which is 24 percent owned by Abu Dhabi-based Etihad PJSC, benefited hugely from a controversial decision by the Indian
government to multiply the number of seats permitted between Indian airports and the giant Gulf hubs of Dubai and Abu Dhabi
This gentle treatment was notably different than that handed out to Jet's biggest domestic rival for a decade, Vijay Mallya's Kingfisher
Airlines, which was denied the right to stop and refuel its long-haul flights in the Gulf - something that would have sharply reduced its
fuel bills and perhaps kept it flying longer
(Kingfisher collapsed in 2012, and Mallya is now in exile in London, where he is fighting extradition requests from an Indian government
that accuses him of absconding with money from state-controlled banks.)Government intervention is also stifling the future of the sector
Connecting smaller Indian towns and making short-haul flights profitable is central to Indian aviation's hopes for the future
Yet Prime Minister Narendra Modi has insisted on a populist and uneconomic $35 price cap for such flights
Few airlines have been interested - and those that were discovered that metropolitan airports would prefer to give their scarce landing
slots to bigger and more remunerative jets
Unsurprisingly, the new scheme to connect smaller airports seems to have crashed before it took off, with airline licenses being cancelled
left and right.And then, of course, there's the elephant in the sky: the state-owned Air India, which lumbers along adding to its losses
Every year, the overstaffed and inefficient airline puts taxpayers deeper in debt
Worse is its malign influence on the sector as a whole
After all, it's tough for any private airline to raise fares when one of its competitors seems to have no real budget constraint and can
keep fares at whatever seems politically acceptable.Jet is looking for investors now
Etihad - which is bleeding cash itself - might have to step up
Nobody else looks really interested, and definitely not unless they win a controlling stake; nobody was interested in buying Air India
either when the government put it up for sale earlier this year
The Tata Group, which already runs one airline - Vistara - has reportedly been interested in both, but that's because the group has had an
obsession with airlines ever since Tata Airlines was nationalized in the 1950s and turned into Air India
Unless you are a little obsessed or have already invested in the sector, who's going to want to run an airline in IndiaThe troubles of its
aviation business are a microcosm of how the Indian economy works
From the outside, everything should be going its way - strong demand, smart companies, sound fundamentals
But a combination of private sector overconfidence and government intervention means that it's just too difficult to make sustained profits
here.(Mihir Sharma is a Bloomberg Opinion columnist
The facts and opinions appearing in the article do not reflect the views of TheIndianSubcontinent and TheIndianSubcontinent does not assume
any responsibility or liability for the same.(Except for the headline, this story has not been edited by TheIndianSubcontinent staff and is
published from a syndicated feed.)
