Why airlines in India are facing losses?

Why airlines in India are facing losses?Recently, Kingfisher Airlines was all over the news but for the wrong reasons. It is on the verge of a collapse. However, this is an alarm for the worse which is yet to come. The Indian carriers are the victims of the Indian government policies and tax structure. Many airlines across the globe are running successfully at lower fares than their Indian counterparts.

India is one of the countries where the fuel prices are highest in the world. Aviation turbine fuel (ATF) is not a cheap fuel but Indian system of levying taxes makes the fuel exorbitantly expensive. Since the taxes are imposed on percentage basis, it is a source for increased revenue for the government. Another reason for diminishing revenues of the airline companies is the high cost of usage of Indian airports. It is quite striking to know that Indian airports have higher charges than most of the other Asian airports. Ever since privatization of Indian airports began, it’s allowed the airport owners to charge as per their will. Such charges are not only high for Indian carriers but for other international players. Air Asia and Austrian Airlines have stopped flying to India due to the extravagant airport charges (Sanghvi, 2012). International Air Transport Association (IATA) have predicted that the Indian aviation industry will have poor profitability this year as well as no key fundamental change has been made to counterbalance the losses of the aviation firms due to exorbitant fuel prices. IATA also considered the High User Development Fee (UDF) at Delhi and Mumbai airports is further worsening the problem as it is making air travel in India more expensive. AERA has recommended 340 per cent rise in the UDF at Delhi Airport, if implemented, Delhi airport will be the most expensive airport of the world. Indian aviation sector is trapped in the web of political motives, legal regulations and international fuel prices and the current problems have be solved only through government intervention that should be based on the four major stakes of taxes, infrastructure, costs and investment policies ( Times of India, 2012).

Indian aviation sector has indeed a very promising future with a flourishing economy and rising preference of Indian tourist destinations which can be further consolidated with government’s proactive approach towards the industry and allowance for 49 per cent of foreign direct investment that will help Indian firms to have strategic alliances with foreign companies and strengthen their position through equity stake (Tribune India, 2012). Better aviation management is the need of the hour to halt the downfall of the promising industry.

REFERENCE

  • Sanghvi, V. 2012. Plane Maths: Kingfisher will Survive, Aviation will Struggle, Hindustan Times, February 24.
  • Times of India, 2012. Indian Aviation Sector in Critical Phase: ITATA, March 15, 2012.
  • Tribune India, 2012. Indian Aviation Sector in Critical Phase: ITATA, March 15, 2012. 
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