Much has already been said about the suffering aviation industry. It seems that it is flooded with a whole new set of worries and issues to ponder about. Firstly I don’t think airlines in India are going to call it a truce, when it comes to ATF prices, which are soaring sky high. A recent presentation was made to the Union Cabinet in which Civil Aviation Minister; Praful Patel addressed issues facing the industry. He said that Indian airline companies are being charged way higher ATF prices than their global counterparts. A total of 40 percent to operating costs is just not acceptable.
To add to these woes, is the ever increasing sales tax, large scale layoffs, overcapacity and large debts which are major causes of concerns for Indian airline companies. Jet Airways Debt Equity ratio was 9.1 as recorded in March 2009, which is a steep rise over last year’s figures which were 4.57.
Grappled with high interest rates for payout of debts and stiff competition leading to price cuts, the picture for Indian aviation Industry is far from being rosy. The cumulative losses of airlines all around the world, this year mount to a whooping 9 billion dollars. Airlines in India have suffered a loss of around 10,000 crores, which is a major concern for the industry.
Praful Patel also brought up the point of infusion of capital into the state run airlines Air India, which has its own set of problems, including painful management issues and large debt due to new orders of air jets, which totals the outstanding debt to around 50,000 crores.
The recent strikes by Airlines did not do any good for the industry either, and just added to the inconvenience of the Indian passenger. There has been a slump in passengers too, who have undergone a change in their travel habits lately, much due to the recessionary effects. Some have migrated to the less expensive train travel, and business class passengers, who are the cornerstone of revenue contribution, are increasingly choosing cheaper air tickets.
The industry is also fighting hard to reduce taxes, which are as high as 29% in Mumbai and 33% in Delhi. Airline companies want ATF to be included in the declared goods category, which attracts a 4 percent uniform tax rate across states. One of the major concerns facing Indian Aviation today is the challenge to keep operational costs at a minimum. In their frenzy to reduce costs, the brunt has been on the workforce where more than 28,000 pilots, flight attendants, gate agents, sales representatives, and office workers have lost their jobs. Increasing number of airlines has made it a crowded market, however low cost airlines like IndiGo are looking to co-operate with the ministry to find out a mutual solution regarding the problems faced by the industry.
In spite of the gloomy picture, International Air Transport Association (IATA) has a vision to improve infrastructure and achieve global standards. In this regard the airports authority of India (AAI) are set to raise funds worth Rs. 5000 crores, by issuing infrastructure bonds. The AAI is currently involved in modernizing a large number of airports, with a focus on metro airports.
The picture is as bad in the global aviation scenario, with airlines like AMR Corp. and Continental Airlines in America showing losses, where Continental Airlines touched a loss figure of $ 18 million. One of the primary reasons for surmounting losses is the drastic cutback of flights taken by business executives, due to the recessionary environment. Most of the airline companies in the United States are relying on recapturing the high-paying customers, as premium business travellers form a large chunk of the revenue.
The lifeline for the aviation industry in the near future would be to control the escalated costs, and the return of premium customers which would add impetus to the industry and its future. Countries like United States are focussing on innovations to drive growth and profitability in the near future. With plans to deploy a new air traffic management technology NextGen, it aims to eliminate Radars and improve air traffic by controlling it from satellites instead of ground based technologies. This would largely reduce flight delays and concerns over flight safety.
With countries like China, looking to embrace this technology in the near future, the scenario for aviation technology looks bright. How far this percolates into revenue and sustainable profits in the long run would be something which needs some guessing into.
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