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Rise and fall of Private Airlines in India

Rise and fall of Private Airlines in India

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Title: Rise and fall of Private Airlines in India – Why most of the Airlines except Indigo are struggling?

Why in news?

  • The suspension of operations at Jet Airways — at one time India’s largest private airline — follows the troubles at Kingfisher, Air Deccan, and Sahara.

Beginning

  • National monopoly: For four decades after eight independent domestic airlines — Deccan Airways, Airways India, Bharat Airways, Himalayan Aviation, Kalinga Air Lines, Indian National Airways, Air India (formerly Tata Airlines), and Air Services of India — were merged to create state-owned Indian Airlines in 1953, India’s aviation sector remained a national monopoly.
  • Policy changes came in the 1990s — and liberalisation and economic reforms gave the private aviation industry new wings of hope.

Post 1990s

  • Private players: Several of the private airlines that took off during that decade were to hit air pockets soon, however — and in the years that followed, the sector saw the entry of quite a few new players even as the businesses of others collapsed or were taken over.

Jet Airways

  • Founder promoter Naresh Goyal’s Jet Airways was one of the first private airlines in newly liberalised India.
  • In 1993, a year after its launch, Jet got an air-taxi operator’s permit, which meant it could fly, but without a schedule.
    • A flight schedule allows a carrier to estimate costs and revenues for six months, the period of a single schedule in India.
  • Less than two years later, Jet got permission to fly as a scheduled airline after the government abolished The Air Corporation Act, 1953, which gave the state-owned carriers the monopoly to operate as scheduled airlines.

Government measures

  • Besides repealing The Air Corporation Act, the government announced an Open Skies policy in 1992, liberalising rules and regulations to open up the commercial aviation market.
  • This led to the birth, over the next decade or so, of private sector players including ModiLuft, Damania Airways, Air Sahara, and East-West Airlines.
  • Most of these new players, however, folded up soon or were merged — Jet Airways in contrast, stood out as an efficient private sector operator, gaining market share with each passing year.

Expansion

  • The real expansion of the private airlines, and the number of domestic flyers in India, started in the 2000s.
  • In 2003, Captain G R Gopinath started the country’s first low-cost carrier Air Deccan, which was followed by the launch of SpiceJet, IndiGo and GoAir.
  • All these carriers followed the model of no-frills, cheaper tickets, and higher passenger load factors.

LCC model

  • The LCC (low-cost carrier) model revolutionised the Indian aviation sector, pushing the country’s annual passenger growth rate to double digits.
  • Alongside the LCCs, Kingfisher Airlines started operations in 2005, pitching itself in the middle of a no-frills and a full-service carrier.
  • These new airlines posed a formidable challenge to Jet Airways, which had so far operated largely in a duopoly with state-owned carriers Air India and Indian Airlines (which were merged in 2011).

Other side

  • Air Deccan faced extreme financial difficulties and was bought by Kingfisher in 2007. However, Kingfisher itself went belly-up in 2012, while SpiceJet faced intermittent headwinds.
  • Jet, which had a 44% share of the domestic passenger market in 2003-04, steadily lost ground — in February this year, the deeply troubled airline had only 10% of the domestic market share, fourth behind IndiGo (43.4%), SpiceJet (13.7%) and Air India (domestic, 12.8%), according to government data.
  • In all these years, IndiGo stood out as the only carrier that improved its market share and financial performance.

2004 – Policy change

  • 5/20 rule: In December 2004, the government announced a major policy change, allowing Indian scheduled carriers with a minimum five years’ continuous operations and a minimum of 20 aircraft (the so called 5/20 rule) to fly international routes. Jet was the key beneficiary of this policy change.
  • 0/20 rule: In 2016, the government scrapped the 5/20 rule and replaced it with 0/20, enabling SpiceJet, IndiGo and GoAir to launch international flights in the following years.

Industry

  • Fastest growth: Over the last four years, India’s aviation market has grown at a yearly average rate of 20%, among the fastest in the world.
  • More and more Indians are flying; paradoxically though, nearly all the major players are in dire straits financially.
  • Factors of success: Apart from operational and managerial efficiencies, one of the key determinants of an airline’s success or failure is the price of crude oil.
  • ATF: Fuel costs account for roughly 40 per cent of a carrier’s operating cost. Steep taxes on aviation turbine fuel (ATF) in India — one of the highest in the world — make Indian carriers less competitive against global players.
  • The launch of the LCCs disrupted the business model of the full-service players, eating into their market share, and creating stress in the market.
    • The wafer-thin margins, and heavy competition and government taxes, results in airlines turning commercially unsustainable from time to time, and they require constant infusion of funds to stay afloat.

Mains question

  • What ails the aviation industry in India? Suggest measures to revive the ailing industry.