Lots of pain, little gain

The latest little ray of sunshine being dangled came from Civil Aviation Minister Ajit Singh who started 2014 off by suggesting the government could ease restrictions that currently prevent domestic airlines from flying internationally until they have been operating for five years and have at least 20 aircraft. Singh said he was moving to get federal cabinet approval to “scrap this rule”.

Such a move would be highly significant because not only would it allow some carriers like Go Air (it has been flying since 2005 but has fewer than 20 aircraft) to spread their networks and take advantage of booming regional markets, it would also make things easier for newcomers. The likes of AirAsia India, scheduled to begin flying this month (March) and the fullservice Singapore Airlines-Tata Industries joint venture airline, launching in the second half, would be freed from the shackles of being limited to flying in India’s volatile and highly priced competitive domestic market for five years.

Another change that has taken place won’t be so welcome to local operators. In January India lifted its ban on airlines flying the big A380 Airbus into its airports, a rule originally designed to protect its own carriers. The Minister cleared the way after advice from ground handling, immigration and security officials on how the infrastructure would be affected by large aircraft carrying 500-600 passengers at a time. Big overseas operators like Singapore Airlines, Emirates, Lufthansa and British Airways, not to mention Etihad and Qatar Airways who will get the A380 soon, are drooling at the thought of filling seats with India’s burgeoning flying public. For national carrier Air India it is bad news. The only Indian carrier to order the A380 was the now defunct Kingfisher, whose five aircraft purchase has now been revoked by Airbus.

The truth is, however, that a policy change on rules for international flying is not likely to become reality any time soon. For a start, India has a general election coming up in May and local observers point out the outgoing government is unlikely to make any major aviation policy changes in advance of a possible change in government. New leaders in New Delhi might also have a totally contrary view of what aviation requires. Besides, history tells us nothing happens fast in New Delhi. Any new proposal would almost certainly

It is clear that the domestic Indian aviation market has a fundamental problem with viability.

take months to stutter through the numerous departmental committees involved in clearing the way.

What we do know is that there continues to be little sign of fiscal stability in the Indian market. Consultancy CAPA Centre for Aviation suggests Indian carriers are likely to post record losses in 2013-14 with government-owned Air India and two listed carriers, Jet Airways and SpiceJet, being the worst performers. Indian airlines collectively lost over $500 million in the quarter ended September 2013 (the peak season) and the deficit in the December quarter is expected to be anywhere between a further $175 to $250 million.

“Full-year profitability requires carriers to recoup losses in the first and third quarters. But when the industry is reporting significant losses in the peak season it is clear that the domestic Indian aviation market has a fundamental problem with viability,” a CAPA report says. It points out that in 2013-14, Jet’s losses could wipe out almost the entire funds generated from the 24 per cent equity investment by Etihad.

“As a result Etihad may need to recapitalise the company in 2014-15, which could include increasing its stake to 49 per cent. It is possible to see Jet being de-listed in the near term. It is possible that the Jet Airways Group’s 2013-14 losses could be close to 70-80 per cent of the total combined losses since 2007 which stand at $455 million. SpiceJet is also expected to report a record full-year loss in 2013-14, which could be equivalent to its entire combined losses since 2007, which stand at $191 million,” CAPA said. With Air India’s losses expected to exceed $750 million in 2013-14, IndiGo and GoAir are the only airlines likely to be profitable.

India’s overall air passenger traffic may be expected to triple by 2020 to 452 million annually but none of this bodes well for either the incumbents or newcomers AirAsia India and Tata-Singapore Airlines.