India's Aviation Sector Faces Financial Crisis

The Indian aviation sector is facing turbulent times, with airlines like Kingfisher and Air India running up huge losses and struggling to turn around their operations. Kingfisher's chairman Vijay Mallya says there is a crisis across the whole industry, thanks to rising fuel costs and government taxes.
India's national carrier, Air India, is deferring the payment of staff salaries to cope with a credit crunch. When Air India recently announced that salaries for July will be paid two weeks late to its 30,000 staff, angry staff members threatened a nationwide protest. But the airline management says it has little choice in light of the financial crisis it faces. The airline incurred losses of $800 million last year.

Others have faced losses Government-owned Air India is not the only one reporting massive losses. A number of private airlines, which set up shop in the last five years hoping to benefit from a growing economy, are also struggling with high debt and huge losses. The federal government has promised a bailout package for Air India. Rajesh Menon at the Confederation of Indian Industry says other airlines are also asking the government to consider measures that will help them reverse the decline in profits. "There is an issue of financial viability of the way airlines are functioning," said Menon. "There is a discussion already going on with the Government of India trying and seeing the way there could be support mechanisms in this regard there is an issue on taxation which at least if it could have been sorted out it would have been a little more viable." Government aid The industry, for example, is hoping for reduction of taxes on jet turbine fuel, which is the most expensive in India. It also wants the government to allow foreign airlines to buy equity in domestic airlines to give them access to fresh capital. Like the aviation industry worldwide, the crisis in India was triggered by the high rise in fuel prices, and declining passenger traffic. Domestic air traffic in India fell by 15 percent in April compared to the same month in the previous year, continuing a steady decline in recent months.

Affordable travel This has hit hard a sector that expanded massively until 2007 on forecasts that passenger traffic would grow as increasing affluence made air travel more affordable. Many airlines bought new jets. Air India, for example, is taking delivery of 26 new aircraft this year. But many aircraft are flying with empty seats as costlier fares have prompted people to cut back on both business and leisure travel. And the global economic downturn has worsened the situation. A recent report by the Center for Asia Pacific Aviation says losses for the fiscal year that ended in March this year could double from the previous year's losses of $ 1.75 billion.

Extension of fees may solve crisis of Indian aviation industry

Are you finding the soaring pries of aviation industry unnecessary and unwarranted? You may be representing the general mood of people but that it is no way going to affect the thought process of the key airlines in the realm of India. This became clear in the recent days from the statements of Jet Airways, the country's largest private airline. It stated unequivocally that even the recent five to six hikes in prices is futile to solve the relevant problems of the fliers. To its consideration another 15% increase in fares along with a host of cost-cutting measures by both airlines and the government is necessary to put an end to the ongoing crises of the industry. For this reason the prices are likely to be increased in the coming seasons in accordance with the reduction of other measures. Speaking on this CEO of Jet Airways Wolfgang Prock-Schauer stated categorically, "Even after the latest 10% hike, we are far from being out of the woods. Another 15% hike is needed along with structural reforms. The latter include cost-cutting by rationalizing flights; tax reforms on jet fuel pricing; temporary relief in landing, parking and navigation charges and a freeze on any increase in airport charges, especially at new private airports." It has been found that the airlines are demanding deferral of user development fee (UDF) at Bangalore and Hyderabad airports, though it has already been refuted by the Union Civil Aviation Minister Praful Patel. To him the UDF happens to be a key part of the revenue model of airport developers and that cannot be compromised. What is more it can be introduced from this very month adding woes of the passengers. To tackle the present crisis the Jet Air is set to introduce its $50-million cost reduction plan for 2008-09. This will include stern reduction of distribution costs and also renegotiation of the agreements with vendors. This example is likely to

be followed by other key carriers also. If all these take place once, the middle class Indians will have to rethink of the pleasure of using airplanes frequently.

Policy paralysis and a slowing economy a poor combination

The outlook for the operating environment in 2012 is not encouraging. India s economy has slowed noticeably in the last two quarters and GDP growth for this current fiscal year is likely to be closer to 7% than the 8.5-9.0% forecast at the start of the year. With increasing concerns about the direction of the global economy, India s growth in FY2012/13 could possibly dip below 7%. This is a rate of expansion that most economies would envy, but it falls short of the Government s own targets and of the growth needed to achieve the Government s employment generation and poverty alleviation objectives. Negative global economic sentiment, led by the financial crisis in Western Europe, is only partly to blame. India s slowdown has largely been driven by internal factors, primarily a Government at the centre that has been plagued by corruption and governance scandals. These have diverted attention from implementing the reforms needed to modernise the economy, directly frustrating investors. Capital has consequently been fleeing the country, depreciating the Indian rupee by almost 20% since Sep-2011. For the airline industry the result is higher costs of fuel, aircraft leases and maintenance.

Air India monopolising government attention. With no solution in sight, it is actually creating the problem ...the only winners in this scenario are the foreign airlines from whom Air India is being protected ...
A lack of reform within the aviation ministry itself without a dedicated minister since Jan-2011 has served to heighten paralysis at the macro level. For almost the entire year Mr Vayalar Ravi, Minister of Overseas Indian Affairs, had the Ministry merely tacked onto his main role. His almost exclusive obsession with Air India caused policy inertia, seriously damaging the entire industry. Perhaps the most retrograde decision has been to grant Air India first right of refusal on private carrier applications for international traffic rights. These national assets in the form of bilateral entitlements are thus being viewed through the prism of a seriously bankrupt company. Air India has limited capability to operate new routes, meanwhile blocking private carriers from doing so. As has happened so many times before, the only winners in this scenario are the foreign airlines from whom Air India is being protected . Despite the preoccupation with Air India, the airline has no turnaround plan. Its sole strategy is to spend up to USD1 billion annually in government subsidy throughout the coming decade as much as the entire national higher education budget. Why this is necessary when there are perfectly good private sector operators ready and able to offer air services simply beggars belief. But there is worse: to generate cash

flow, Air India is pursuing a suicidal taxpayer-funded commercial policy, discounting fares that private carriers are forced to match. Here is the main cause of the losses posted by the industry taxpayers money being used to destabilise private sector airlines. Passengers have enjoyed a temporary consumer surplus, benefiting from cheap airfares, but an unviable sector is not ultimately in the interests of the travelling public.

Government needs to focus on industry viability and safety

Meanwhile, the Government risibly continues to micro-manage issues such as the rights of airlines to sell exit row seats or charge for additional checked-in luggage. Seasonal increases in demand which result in higher fares trigger scrutiny by the regulator yet there is no intervention in the case of predatory pricing. If airlines cannot charge higher fares during peak season to counter losses during the leaner months, it is simply not possible to maintain a viable operation. And quite clearly the losses incurred by the industry indicate that airlines can hardly be accused of price gouging. Rather than focussing on micro issues, the Ministry of Civil Aviation s objective should be to create an environment which recognises and supports industry viability and competitiveness. The sector must be in a position to operate safely and efficiently, delivering sustained and reasonable profits and covering its cost of capital.

A new, dedicated Minister of Civil Aviation is a positive, but he faces a challenging task ...a change of leadership at this critical time means uncertainty will persist...
On 18-Dec-2011 Ajit Singh took over Mr Ravi s civil aviation responsibilities. A dedicated minister is a positive development, but a change of leadership at this critical time means uncertainty will persist, especially in the absence of a clear strategic framework for the sector. Mr Singh s task is to create an environment that will allow airlines, and indeed the broader aviation industry, to become viable. Even airports and general aviation operators are struggling. The solutions are relatively easy to identify, but the weak link is the political and bureaucratic will.

Traffic is expected to continue to grow strongly, but financial recovery will be slow
Recovery, particularly for the full service carriers, Air India, Jet Airways and Kingfisher, will be slow. India s airlines have approximately USD16 billion in debt, including outstanding payments to vendors, of which USD6-7 billion is

for aircraft-related loans. Air India s debt will increase by a further USD4 billion if it proceeds with plans to purchase its order for 27 Boeing 787s, generating an annual interest burden of USD1.25-1.50 billion. A combination of low fares and sustained high costs, thus make sustainability unlikely. Several expenses have been out of the control of the airlines, fuel, for example, has been at elevated levels for almost 12 months, general inflation in India has been at close to double digits, airport and ground handling charges have been increasing, and a shortage of skilled labour means wage pressures are mounting.

Banks have become a critical pillar of the aviation sector...

Under these challenging circumstances, India s airlines have struggled to raise capital. Aside from Air India s equity infusion from the Government and a preferential shares issue by SpiceJet, plans to raise in excess of USD1 billion from capital markets have been deferred. The situation has been made more difficult by record low market caps for the listed carriers several carriers have immediate financing requirements greater than their current market cap. Aircraft financing has also dried up and carriers are increasingly turning to leasing to finance their aircraft deliveries. Heading into 2012 airlines will continue to struggle to raise equity and will need to take on additional debt, further eroding viability. Banks have become a critical pillar of the aviation sector to date they have provided invaluable support to Air India and Kingfisher Airlines, but in 2012 they are likely to be called upon by even more carriers, increasing their aviation exposure further above the current USD6 billion. The negative impact on the balance sheets of Indian public sector banks in particular could create a political issue in itself.

Poor government policy means airports also face financial challenges

Meanwhile, private and state-owned airport operators continue to struggle. The operators of Delhi and Mumbai Airports have invested USD5 billion in modernising these facilities but the revenue collection has been less than expected due to the economic regulator not permitting a dual-till framework, while the Supreme Court ordered both airports to cease collection of Airport Development Fees from passengers, pending approval by the Airports Economic Regulatory Authority. The state-owned Airports Authority of India (AAI), which has 125 airports under its control, of which around 75 handle scheduled services, is also in a state of financial distress. CAPA estimates that airlines have accumulated approximately USD240 million in outstanding payments to the AAI, which it meanwhile continues to face significant capital expenditure commitments to support its extensive airport modernisation programme creating a cash crunch for them too. The AAI s complex business model which includes managing the largest portfolio of airports in the world under a single operator, investing huge capex in airports which are largely loss-

making and the provision of air navigation services, will come under increasing pressure in 2012.

Solutions are obvious, implementation is more problematic

The Government can easily take immediate steps to assist the sector. These include reducing the punitive sales taxation on aviation turbine fuel; permitting foreign airlines to acquire up to a 26% shareholding in Indian carriers (a proposal now before Cabinet); approving private carrier applications for international rights; removing restrictions on ancillary revenues; and obliging more rational pricing by Air India. In the longer term, the focus needs to be on creating a well-structured policy and regulatory framework and on enhancing the efficiency of the nation s aviation infrastructure, particularly airports and airspace. The fundamental drivers of aviation growth in India remain strong and it should emerge as the third largest market in the world within five years. But this will require important decisions in 2012 by government and operators alike to position Indian aviation as a safe, efficient and viable sector. With just two years to go until the next elections, the sad prospect presents, however, of a government which will be prepared only to allow the rot to persist. Yet an active Mr Singh has it within his grasp to engrave his name as the Minister who turned around India s industry. Airlines are themselves partially and in some cases largely responsible for the crisis they are in today. They have failed to build a sustainable aviation model suitable for the country. Therefore, there is no apparent need for the government to intervene in terms of writing off individual loans or sinking more taxpayers' money to bail out Air India. But none of the government's stimulus plans has had any positive impact on the aviation sector because they are not manufacturers nor are they considered infrastructure providers. Is Kingfisher Airlines a blind bet like Satyam Computer? Therefore, a separate package needs to be given to the aviation sector as it is integral to ensuring equitable economic growth: aviation is the mainstay of tourism which is the biggest employer in the world, especially in the unorganised sector. It is also key to attracting overseas investment and to knit a vast country together. But first, airlines have to tighten their belts and cut costs, become more innovative and efficient, and engage the government for policy initiatives at a systemic level, which addresses all stakeholders of the aviation industry. Three years ago, airlines formed an association and brazenly fixed entry-level airfares to tackle the losses during recession, instead of expanding consumer base. In any other country, airlines would have been punished for cartelisation and price fixing. Instead, consumers punished the airlines by not flying. Why are Indian airlines facing huge losses despite rising passenger traffic?

Cartelisation takes place because there is no long-term civil aviation vision, the competition commission is yet to function properly and the aviation regulator is still not fully empowered and has a limited role in airports, which have become monopolies. There is a huge, apathetic bureaucracy, monopolies like the DGCA still labouring under aircraft rules framed in 1937, discretionary allotments and decisionmaking, and corruption in various aspects of the business. There are also lobbies of entrenched players creating entry barriers for new competition and preventing funds from flowing into the sector for new aspirants and struggling airlines. Ironically, only 3% of India's population is flying, while every sector is growing at a frenetic pace. Before the low-fare revolution in 2003, the number was even smaller, only 0.5%. But even 3% is an abysmal figure, comparable to some of the poorer African countries. Last year, 50 million air tickets were purchased. In Ireland, which has five million people, 25 million tickets were sold, in the US, 600 million tickets were sold to a population of 300 million, and closer home, in Malaysia, 16 million tickets were sold to a population of 28 million.

Way out of aviation crisis: lower taxes, cheaper tickets

The Federation of Indian Airlines threatened to go on strike for one day on August 18; it made headlines and upset many, including the government. The strike is off, and, yes, airlines are at fault, including for an attempt at cartel-like behaviour. But the government is at fault too. Indias aviation industry, flying around 40 million domestic passengers a year, is still an infant industry when compared to railways which transports about 14 million passengers a day and bus transport which carries 90% of passengers, mainly over short distances. As the economy grows and incomes increase, the propensity to travel by air also grows. Air transport, no doubt, is a more efficient form of long distance transport. For efficient economic growth, aviation infrastructure including air connectivity at reasonable costs becomes as much a necessity as railways or road transportation. This realisation came in the early nineties when liberalisation of domestic...airlines was carried out, followed by liberalisation of bilateral air service agreements, to allow more domestic and foreign airlines into the country. But air travel is still considered a luxury. Central and state governments have found an easy way to enrich their coffers by putting very high taxes on petroleum products via both sales tax and aviation related charges. About two decades back, air travel was done mainly by government officers or corporate executives who were not price sensitive as their office paid for the bills. With economic growth, ordinary businessmen and people from all walks of life needed to travel by air also but were price sensitive. The sale price of aviation turbine fuel (ATF), sales tax on ATF, navigation and airport charges kept air travel expensive. With the coming of low cost carriers (LCC), full

service carriers started to lose dominance. From about 30% of the market... in 2007, they have reached 55% of air passenger traffic in Q1 of 2009, showing how price sensitive this sector has become. The global financial meltdown impacted the sector globally and Mumbai 26/11 impacted Indias inbound tourism in a big way. Airlines the world over suffered, including domestic ones. They can recover only with increasing air traffic and cost cuttings by use of better technologies like e-ticketing and improved procedures. Airline seats are perishable like electricity. Unfortunately, some domestic airlines felt that by cartelisation and increasing prices, they would be able to increase their bottomline. This didnt work We need to relook at the governments fiscal policy on the aviation sector. Boxes on the right list sales tax on ATF across different states, varying from 4% in Andhra Pradesh to 30% in Maharashtra. They also list comparative airport charges between Singapore and Delhi. Further they provide a comparison of ATF charges at Singapore and Mumbai stations. With the kind of price sensitivity we have experienced in the case of LCC vs full service carriers, it appears that if taxes and charges are reduced and this is reflected in reduced ticket prices, the loss to government revenue will perhaps be more than compensated by increased traffic. Andhra Pradesh has already taken a step forward towards reducing sales tax on ATF to 4%. If other states also join in, especially the states with metro cities, this will have a major impact on passenger traffic. Further, if we compare the tax on a railway ticket or bus ticket with the tax on an air ticket, then the comparison becomes completely skewed.

Crisis In Mid Air - Indian Airline Industry Doom

A smile Dawns on his face as he reads the morning newspaper.His prediction of Airlines Falling apart we being born again alive.As he sips tea he tells himself, Who cares if the Oil Prices Rise, I dont! He Reads a bankrupt in USA, Continental Airlines , He laughs at their Predicament. He goes before a mirror and ther The Power of Attorney , The man who controls India, A man who has swept the Indian Politics by Force. ruled by another guy but he is the command over there. He is the ultimate Power who empowers India. yadav.

As his MitubishI lancer Awaits for him , He sits inside the PRe cooled Car and asks his Driver , Oye kahe keemath ka hai babura? The Driver says pachpan Indicating 55 Sarkar.He laughs and says Lets see Wha another grounds Anil Ambani and his rumours of Buying Spicejet. Spicejet stocks rose like redwood trees UsA admit rumours of Reliance Industries taunting Another Takeover in his quest to world takeover. Still Mercedez Benz is more confused than a Baby handling a new toy. The new toy he wants to takeover is S of Oil Rise questions the possibility of the takeover.Airlines in India have been on losses because of the r to attract customers Cheap tickets as much as 99 were offered. Vijay Mallya is having a headache, His n Deccan has been Amounting losses of around 693 Crores. He Takes a Image of Naresh Goyal and says H

this Profitability.Amoongst All this the only man who doesent worry is Laloo prasad Yadav.His Railways h profit like Wildfire.His Profitability wont be effected Even if Petrol reaches 75 Or disel or wahtever. He is ago When he waged a war against airlines, he had wrinkles on his face Wrinkles Which partnered with m Railways will suffer due to the cheap Airline Fears.But he composed himself a thinking , A thinking which Darwins theory of life, Survival of the fittest. He Knew the railways had sustained through 150 years of P Controversies and What not. He always reminded himself that the White Colour Man dont run this count THe people Do not Dream to fly, They want a cheap way of Transportation.And The Railways is the only getting hopeless and Sad that the Railways is not doing anything, HE cut the prices, He tightened the Se new trains All which was hailed by the people but which Hurt the congress government citing fear of Bud

Today He commands more respect in the Congress Goverment than Higher Congress members. Laloo ha people that he be uneducated, Illeterate, Dumb, And what not ( TImes of India Said So). HE stil is the M country. Today he has amassed the power that He with this talk can kill a human being. Laloo prasad Ya Airlines. And the Rest of the entry goes in this way .. Well dreaming of cheap airline Flights? Make my tr from Rs 99 ( Hidden Costs include - HELL LOT OF TAXES - 3000, Crappy food - 300 Bucks, Compressed Bucks,Smelly Flight attnedants who would rather like to strip and say a Fart joke than work - 1000 Buck least our Hidden hidden hidden hidden service charge ) Enjoy your Flight! If your one of those newbies w flying, Flying like that bird whose soon gonna be extict? flying like that butterfly whose colour is soon go the wright brothers, Boy Give us a break for a change All they did was invent a freakin Flying Device?! D that, then FUCK YOU , May be you could have flied when animalws were allowed on Air deccan But nooo smartass Now pay U bloody Bastard! The days of cheap airfares are over friends. Its time you work 2 jo techie or some insurance selling guy and at night may be a male gigalow or something. Good luck with t Stirring Freaks! C u!

Note - I often been questioned about my lack of manners when I write blog entries. But hey I say to my write whatever I want whenever I want and Wherever I want ( I think Plug 2 Surf will aid that ). I was in by the name of Niharika She says about my entry .. Yeah Baby You will go in times of India? Please note show her oversmart sliced up dumb wit. The funny part is she says in the end? Where is the sequal! So reading my entries eh? Aaah Who cares! I just love BLOGGING! I love to blog through Blogger, I love to and I love to blog through Several thousand Fucked up Blog hosts who never got anything!Well DUh I sa man, TOo many blogging sites, too many social bookmarking. I do understand ur quest but may be u co know unique or something like that Ratemyshit.com Wow man ? THink about that? May be the owner co Drinkyourownpee.com or ilovetoeatmyshit.com or something! Pheew! This writing sure tires me up. Tim pound body from this area to another area

How to turn the aviation crisis into an opportunity

There was chaos earlier this month when Kingfisher Airlines cancelled hundreds of flights and left passengers stranded and angry. Air India has been foundering on the verge of bankruptcy for some time, disrupting schedules and unable to pay for fuel and salaries. It is time we demanded a long-term strategic vision for Indian aviation from the Prime Minister. The sector encompasses not just passenger airlines but a whole gamut of industries including charter aviation, cargo airlines, cargo express logistics, aircraft manufacturing and ancillary industries, airport infrastructure, maintenance and repairs, and a host of other related industries. Airlines are themselves partially and in some cases largely responsible for the crisis they are in today. They have failed to build a sustainable aviation model suitable for the country. Therefore, there is no apparent need for the government to intervene in terms of writing off individual loans or sinking more taxpayers money to bail out Air India. But none of the governments stimulus plans has had any positive impact on the aviation sector because they are not manufacturers nor are they considered infrastructure providers. Therefore, a separate package needs to be given to the aviation sector as it is integral to ensuring equitable economic growth: aviation is the mainstay of tourism which is the biggest employer in the world, especially in the unorganised sector. It is also key to attracting overseas investment and to knit a vast country together. But first, airlines have to tighten their belts and cut costs, become more innovative and efficient, and engage the government for policy initiatives at a systemic level, which addresses all stakeholders of the aviation industry. Three years ago, airlines formed an

association and brazenly fixed entry-level airfares to tackle the losses during recession, instead of expanding consumer base. In any other country, airlines would have been punished for cartelisation and price fixing. Instead, consumers punished the airlines by not flying. Cartelisation takes place because there is no long-term civil aviation vision, the competition commission is yet to function properly and the aviation regulator is still not fully empowered and has a limited role in airports, which have become monopolies. There is a huge, apathetic bureaucracy, monopolies like the DGCA still labouring under aircraft rules framed in 1937, discretionary allotments and decision-making, and corruption in various aspects of the business. There are also lobbies of entrenched players creating entry barriers for new competition and preventing funds from flowing into the sector for new aspirants and struggling airlines. Ironically, only 3% of Indias population is flying, while every sector is growing at a frenetic pace. Before the low-fare revolution in 2003, the number was even smaller, only 0.5%. But even 3% is an abysmal figure, comparable to some of the poorer African countries. Last year, 50 million air tickets were purchased. In Ireland, which has five million people, 25 million tickets were sold, in the US, 600 million tickets were sold to a population of 300 million, and closer home, in Malaysia, 16 million tickets were sold to a population of 28 million. At the same time, in India, 18 million people travel by train every day. So, this is a great opportunity to exploit the untapped and inexhaustible market at the bottom of the pyramid in an exploding

economy. Even if our 150-200 million middle class fly once a year, it will be a four-fold rise. What better opportunities can an entrepreneur hope for? Today, there is talk of allowing overseas investment in aviation as a knee-jerk reaction to the Kingfisher crisis. Vijay Mallya is pushing hard for it. And some airlines are opposing it to ensure Kingfisher doesnt get a lifeline. But Jet Airways started with foreign investment and the Tata-Singapore Airlines venture was stopped by the then-government to protect existing airlines. At that time, FDI by foreign airlines was scrapped.