India’s aviation hits an air pocket

The Indian aviation sector presents one of the biggest paradoxes of the Indian economy. On one hand, air travel demand is on the rise, and on the other, airlines are failing.

The story of Indian aviation has never been straightforward. It has seen many highs and lows, from the nationalisation of Air India and its subsequent sale to the mushrooming of airlines and their eventual disappearance from the Indian skies.

The aviation industry has gone through a roller coaster rise. Right now, it is going through a very critical time, as many airlines are showing losses and are on the verge of closure. The rising fuel costs, coupled with a falling rupee —which makes maintenance and leasing of aircraft costly — along with high tariffs and bottlenecks at airports has put aviation sector at the crossroads.

The recent spike in aviation turbine fuel (ATF) prices, triggered by geopolitical tensions, has exposed the vulnerability of the aviation industry.

The situation is so grim that the Federation of Indian Airlines has issued a statement that many airlines may be forced to halt operations.

At the heart of the crisis lies the disproportionately high cost of ATF, which accounts for nearly 40 per cent of an airline's operating expenses, which is well above the global average.

The recent implementation of differential pricing, with a steep `73 per litre rise for international flights, has put extra pressure on airlines operating on long-hauls.

Airlines such as Air India, IndiGo, and SpiceJet are particularly vulnerable on long-haul routes, where fuel consumption is significantly higher. However, fuel prices are only one part of a larger problem. Indian aviation also has to contend with heavy taxation, volatile currency fluctuations, and razor-thin profit margins.

The 11 per cent excise duty on ATF, coupled with state-level levies, makes fuel in India among the costliest in the world. Besides, Indian aviation, like any other industry, is very price-sensitive and highly competitive, often leading to irrational fare wars that undermine profitability.

Most Indian airlines rely heavily on price-sensitive economy passengers. The high-ticket costs in periods of high demand irks passengers, who are often forced to shell out far higher fares during peak seasons or last-minute bookings. In a bid to offset mounting losses, airlines sharply hike ticket prices, a practice that places an additional burden on travellers and fuels perceptions of unfair pricing.

The bottom line is that the government must not consider air travel as a luxury but as any other industry which must thrive and provide affordable services to its customers.

The government must rework its tariff structures; if airlines make profits, they will be able to offer cheaper tickets, thereby adding more passengers, which will add to government revenue. Enhancing operational efficiency through better infrastructure and air traffic management must be given priority. The government must work on long-term policy framework - particularly on fuel pricing to encourage strategic planning.  

ATF taxation must also be rationalised by bringing it under the GST regime, to minimise cost burdens. These small steps can go a long way in uplifting the aviation industry.