Indian aviation growth under threat

By Shilpa Kannan
India Business Report, BBC World News

Budget carriers have revolutionised flying but tougher times are ahead

It’s a hot summer day in Delhi and a group of people line up to get into an air-conditioned plane and choose the best seats on board.

Soon the air hostesses come round with cold drinks and snacks and the passengers settle in…and get ready not for take-off but for a lesson in the etiquette of flying!

Poor people who cannot afford to take a real flight pay 150 to 160 rupees or nearly $4 (£1.90) to sit in a decommissioned Airbus A300 which is parked on the outskirts of the capital.

As they learn what to expect in a flight, the instructor shows them how to wear an oxygen mask in case of an emergency.

In the last few years, air travel has boomed with cheap domestic airlines that have brought air fares down by more than 50%.

Aspirational

Yet, less than 1% of Indians have ever boarded an aircraft.

"Flying is still beyond the reach of the common man," says 20 year old Vikarant Hayaram.

Having come all the way from a village near Jhansi in Uttar Pradesh, he is beaming as the air hostess helps him buckle his seat belt.

"It took me twelve hours by train to reach here. I wish I could travel like this, in air condition with a seat to sit on unlike in trains.

Air travel remains out of reach for most Indians

"But tickets are so expensive. If it were cheaper, I could afford them. I hope to go on a real plane very soon."

India's airline industry is the fastest growing in the world and people like Vikarant Hayaram represent a huge potential for growth.

But putting brakes on that growth is the high price of jet fuel.

Fuel accounts for between 40% and 45% of the total operating costs of Indian carriers.

But added to the high base fare is the sales tax imposed by state governments across the country, some of which can be as high as 50%.

Airfares in the country are highly competitive with some carriers offering fares as low as 80 rupees.

But passengers have to pay taxes and fuel surcharges which add up to about another 4,000 rupees ($75, £47).

I am very concerned about the health of the aviation industry Praful Patel, civil aviation minister

So even as the basic domestic fares have been going down, the taxes keep pushing the cost of air travel up.

Low cost carriers which depend on high passenger occupancy suffer because of this.

"The aviation industry saw a revolution in the last two to three years on the back of low fares," says Ajay Singh, director of Delhi-based carrier SpiceJet, which has been operating for three years.

"A good percentage of our customers were first time flyers."

Like other Indian airlines, Spicejet has raised the fuel surcharges a couple of times in the past. But now they are forced to take desperate measures and his airline may be forced to suspend some short-haul routes that are flying increasingly empty to pare losses.

And if fuel prices don’t ease in the coming month, many airlines may be forced to shut up shop or sell out to the bigger players.

Local newspaper reports have suggested that businessman Anil Ambani is competing with Jet Airways India and Kingfisher Airlines to buy a stake in Spicejet.

Economic impact

But the bigger fear is that with the companies suffering, the entire aviation industry in the country may be under threat.

A good air infrastructure is vital to a growing economy like India.

"I am very concerned about the health of the aviation industry," says civil aviation minister Praful Patel.

"We deregulated the industry and everything was going well except for the one factor of fuel. The aviation sector is an important element of the economy and it was not a good sign if the sector was in a bad financial state.

"The modernisation of airports may take a hit if airlines are not doing good business. We will have to seek relief and take whatever remedial measures possible."

Both Boeing and Airbus are predicting that airline companies in India will buy nearly 1000 new planes worth billions of dollars in the next two decades.

The civil aviation sector is expected to generate more than 3 million jobs.

But with so much riding on the aviation industry, Indian airline companies are battling to stay airborne.