Saving GoFirst and SpiceJet has become even more important to retain competition in the aviation sector after the privatisation of Air India
Domestic airfares have been increasing continuously for some time now. Recently Delhi-Mumbai airfare had reached up more than to Rs.20000, for booking done 24 hours in advance, which used to be only Rs.7000 earlier. Fares have been rising on the remaining routes and for bookings made much in advance also. Passengers have been facing the brunt of rising fares.
Its notable that passenger movement has increased significantly after Covid-19. Recently, on a single day on April 30, 2023, 4.56 lakh passengers travelled by air, which was a record. The monthly passenger count of air travel remains between 12 million and 13 million. The increasing number of passengers indicates increasing demand and growth in the aviation industry. Unfortunately, taking advantage of the increasing demand, airlines have started charging exploitative fares. This is not good news for the Indian aviation sector, as passengers may also get disenchanted from air travel due to higher airfares.
In the last two decades, due to affordable airfares, many passengers who used to travel by rail traditionally, have now started traveling by air because of the economical fares. For instance, the train fare for Delhi-Mumbai AC first-class Rajdhani train is Rs 4730, while the airfare was generally lesser than that if booked in advance. Therefore, many people started preferring air travel to rail. But due to the increase in air fares, people can now turn to other modes again, and demand for air travel may reduce, impacting the growth of this sector.
Notably, airfares are increasing internationally. According to the report of Airports Council International (Asia Pacific), there has been an increase of up to 50 per cent in international airfares. The report also says that the highest increase in airfares was 41 per cent in India, while it was 34 per cent in the United Arab Emirates, 30 per cent in Singapore and 23 per cent in Australia.
The report says that there are two main reasons for the increase in air fares – first, the increase in the cost of fuel and second, the high rate of general inflation. Aviation fuel prices have increased by 76 per cent since the year 2019, while other costs of airlines are increasing due to the high rate of inflation globally. But the ‘Airports Council International notes that airlines are trying to keep prices high by limiting supply (seat availability) to keep fares high. The report has expressed the concern that this act of companies can affect the growth in the aviation industry.
Many companies are operating in the domestic aviation sector in India. Indigo ranked first with a market share of 55.9 per cent in February 2023, followed by Tata group's Air India and Vistara at second and third positions, with a share of 8.9 per cent and 8.7 per cent respectively. Although Air India and Vistara will soon merge into one entity, they will still be over one-third of IndiGo’s share. GoFirst and SpiceJet were the two airlines in the fourth and fifth positions with a market share of 8.0 per cent and 7.1 per cent respectively in February 2023. But both these companies are in deep trouble.
Recently, Jehangir Wadia-led GoFirst Airlines, which was India's fourth largest airline with an 8 per cent market share, is not only going through financial difficulties but has filed for bankruptcy. However, its difficulties were initially more technical than financial, for which ‘Pratt & Whitney Engines, the company that supplies the engine, is mainly responsible. The company supplies engines for the Airbus A-320 Neo aircraft. Over the past few years, GoFirst had to ground several of its aeroplanes due to engine problems supplied by the company. Due to all this, the company has gone into huge financial losses. Due to the inability to pay its liabilities the process of bankruptcy has started. GoFirst has suspended its flights since May 3 and filed its bankruptcy application.
Similarly, SpiceJet company, holding the fifth position in the civil aviation sector is also going through a financial crisis. The airline is also grappling with several technical glitches in its planes and for this, the Director General of Civil Aviation (DGCA) has directed the company to ground 10 of its Boeing-737 Max planes. From the first quarter of 2022-23, the company has been reeling under losses due to rising fuel costs, inflation and rupee devaluation, apart from its failure to fix technical glitches. Although the company has not given up, its services are disrupted.
SpiceJet and Go-First used to give tough competition to big companies like IndiGo and Tata Group's Air India, Vistara and Sir Asia. Indigo and Tata group companies are facing much less competition after GoFirst and SpiceJet got into trouble. For this reason, these companies are increasing the airfares indiscriminately. Although taking cognizance of this matter, the Central Government has also given instructions to these companies not to increase the fares, but that too couldn’t fix the problem significantly.
How to stop rising airfares?
After the private sector was allowed into the aviation sector, generally, the decision of airfares has been left to the airlines so that they can fix the prices according to the market and do not suffer unnecessary losses and there is a healthy development of this sector. Competition among a large number of airlines not only kept airfares affordable to a great extent but also led to a healthy growth of the civil aviation sector in general. India’s aviation sector has seen the fastest growth in the world in the past. It is worth mentioning that recently the order of nearly 1000 new aircraft by Indian companies, including 550 aircraft by Air India, surprised the whole world.
This reflects the growth story of our civil aviation sector.
But the economic difficulties of the two major airlines have created a crisis in the civil aviation sector now. For a long time, the government has made this process easier by making major changes in the bankruptcy law to provide relief to the promoters of companies trapped in an economic crisis. If both GoFirst and SpiceJet go bankrupt, IndiGo and Tata Group will virtually have a monopoly in the aviation sector.
In such a situation, the benefit of development and competition in the aviation sector in the last two decades, which the common man was getting in the form of affordable air travel, will now end. As a result, the public was getting the benefit of competition. Since Air India, the only public sector airline, is now a part of the Tata group, saving GoFirst and SpiceJet has become even more important to retain competition in the aviation sector. It’s important to understand that these companies are in trouble not because of financial vagaries but because of negligence and misconduct by multinational aircraft and engine manufacturers. These companies have to be taken to task at the highest level, rather than allowing them to ruin our efficiently run airlines. In such a situation, the intervention of the Government of India in this matter becomes even more necessary.
(The author is Professor, PGDAV College, University of Delhi)