Home' Asian Aviation : AAV May 2019 Contents AsianAviation | May 2019 37
rentals, and with at least 50 out of its total fleet of 124 aircraft having
been grounded, the airline has seen a major disruption of services
and was forced to shut down all its operations in April. It is also quite
surprisingly that despite having enjoyed a dominant position on
international routes with a big chunk of domestic market share for
nearly a decade, Jet Airways managed to report an operational profit
only once in the last seven years. So, it is no surprise that Jet ’s SOS
to Etihad, the minority stakeholder in the company, for a capital
infusion by way of a loan has not cut ice. Etihad in fact is reported
to be seriously looking to exit Jet Airways as it appears to have lost
faith in the current management.
On the other hand, lenders, particularly the public sector State Bank
of India, which has an exposure of over US$300 million in this belea-
guered airline, are quite jittery, despite having wrested management
control from the promoters Naresh Goyal and his wife Anita Goyal. The
dramatic crash of Kingfisher Airlines in 2012, once the leader in Indian
airspace and the one in which public sector banks had generously and
scandalously pumped in money until its very last breath, is still fresh
in the public mind and continues to cause political ripples in India.
SpiceJet, the second-biggest domestic operator today, has been
reporting improved financials since an ownership change in January
2015. At the time of the ownership transfer, the airline had a debt of
overUS$300 million. The new owner, current CEO Ajay Singh, got the
ownership deed for a princely sum of just US$0.029, with all liabilities
as complimentary gift. Yes, the airline’s financial performance has
improved and it has been on an expansion spree adding aircraft
and destinations at a rapid pace. Yet, the hard fact remains that
SpiceJet is still not in a comfort zone as its total liabilities continue
to be in excess of assets while its balance sheet continues to reflect
deferred tax liabilities.
The financials of other major airlines (national level operators) such
as Wadia Group’s GoAir, Tata Group and Singapore Airlines-owned
Vistara and the AirAsia India, the 51/49 joint venture between Tata
Group and AirAsia, remain stressed. AirAsia India, which had begun
its run in June 2014, is yet to report a profit. And despite being the
fastest-growing airline in the last two years in terms of capacity
addition, it had accumulated losses of nearly US$76 million, mainly
due to a sharp decline in average revenue per seat kilometre. AirAsia
India’s loss is likely to widen in FY2018-19.
Vistara too continues to burn cash while debt has crossed US$300
million. This airline, which commenced operations in January 2015,
is unlikely to make an operational profit in the next two years on
account of a huge capital infusion for fleet and route expansion. The
promoters of GoAir are reported to be seriously looking at an exit, in-
dicating mounting financial stress and commercial non-viability. The
fact that promoters of GoAir airline do not have deep pockets like
Tata can make sustainability a big issue in a cut-throat environment.
So how did Indian airlines manage to land themselves in such a
deep financial quagmire despite a phenomenal boom in passenger
traffic? There are operator-specific reasons and there are sectoral
issues, ranging from flawed business models, bad ownership, high fuel
costs to high operational and infrastructure costs. Reasons are many
but the mess has been compounded by a collective suicidal wave for
market acquisition at any cost. So you have a full-cost airline such as
Jet and Vistara offering tickets at nearly the same price and at times
even lower than low-cost carriers (LCCs) such as IndiGo and SpiceJet.
Add to it the cheap offerings by state-funded Air India, which does not
have to worry about making money, and the distortion is complete.
William Boulter, chief commercial officer at IndiGo Airlines, be-
lieves that market distortion has happened primarily on account of
a flawed business model of some airlines and the distorting market
impact of subsidised public carrier Air India.
“ The sector has been growing very fast and has an unusual num-
ber of players in it, most of whom have been adding capacity to cope
with the high demand over the past few years. Importantly, one is
still subsidised by the government and this unfortunately leads to
below-cost pricing which, added to the highly competitive market
environment, contributes to losses,” Boulter told Asian Aviation.
Boulter counsels that reducing costs is essential while charging
appropriately for the services provided is a prerequisite for airlines
wishing to get out of their current financial messes. “ We are a low-
fare, low-cost airline; strangely some others believe there is a future
in a low-fare, high-cost model. The financial quagmire is entirely of
their own making,” says Boulter.
Pran Dasan, chief commercial officer for India and South Asia at
flydubai (Dubai Aviation Corporation), points out that passenger
growth notwithstanding, rising infrastructure costs and policy de-
ficiencies have taken a big toll on airlines’ stability and profitability.
He further points to issues like a huge shortage of pilots, lack
of trained instructors to capacity constraints at Tier 2 and Tier 3
airports which have further contributed to rising operational costs.
“All these factors put together create a complex paradox where
despite being one of the fastest-growing air transport markets in
the world, Indian airlines struggle to be profitable and are extremely
exposed to the vagaries of market forces, currency fluctuation and
oil prices,” says Dasan.
GK Anantharaman, deputy CEO of Air Deccan and Air Odisha,
concurs with Dasan’s views. “ While the policy direction and mac-
ro-economic growth factors enable high-growth potential, the high
cumulative sectoral loss is due to high cost of operations and high
variability of factors affecting the decision making including plan-
ning, funding structures, management deficiencies with ownership
structures. One of the key factors is still the infrastructure cost.”
The financial troubles of Indian airlines have even alarmed aircraft
suppliers who fear their own supply plans are going haywire. Dinesh
Keskar, senior vice president for Asia-Pacific and India sales at
Boeing Commercial Airplanes, recently remarked that Indian airlines
needed to give priority to financial stability over growth.
“Double-digit growth, coupled with losses, is what I am concerned
about...I will forego 2 percent to 3 percent growth for making money
rather than filling up my airplane at rock-bottom prices and never
making money,” Keskar said.
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