Why airlines in India have failed often?

Airlines in India have often struggled due to a combination of structural, financial, and regulatory challenges. Some of the key reasons for the frequent failures of Indian airlines include:

High Operational Costs

- Fuel Prices: Aviation fuel accounts for a significant portion of an airline's operating expenses. In India, jet fuel is taxed heavily compared to global standards, making it much more expensive.

- Airport and Navigation Charges: India has some of the highest airport charges in the world, especially in metro cities like Delhi and Mumbai. Additionally, navigation charges for using air traffic control services are high.

Overcapacity and Intense Competition

- Price Wars: The Indian aviation sector is characterized by intense competition, with several airlines competing for an unlimited market that is often misunderstood to be limited. This often results in aggressive pricing strategies, leading to unsustainable fare levels.

- Overcapacity: Many airlines have over-expanded, ordering large fleets without a corresponding increase in demand, leading to empty seats on flights and lower profitability. Though it is said and also experienced that the demand for aviation is rising in the country, it seems to be particularly limited to the tier 1 cities and a few select cities in the tier 2 or 3 categories.

Regulatory and Bureaucratic Challenges

- Complex Regulations: The Indian aviation sector is heavily regulated, with multiple government bodies involved, making it difficult for airlines to navigate efficiently.

- Delayed Approvals: Regulatory bottlenecks, such as delays in route approvals or foreign investment clearances, can hamper airline operations.

- Foreign Direct Investment (FDI): Although FDI rules have been relaxed over time, there are still restrictions and limitations on foreign investment in Indian airlines, limiting their access to capital.

Weak Financial Management

- Debt and Poor Cash Flow: Many airlines have failed to manage their debt effectively. The capital-intensive nature of the industry, coupled with poor cash flow, makes it difficult for airlines to sustain their operations.

- Poor Business Models: Some airlines, particularly in the low-cost carrier segment, have operated unsustainable business models with razor-thin profit margins, making them vulnerable to economic downturns or sudden changes in costs.

Infrastructure Bottlenecks

- Congested Airports: Major Indian airports are heavily congested, leading to delays and increased operational costs for airlines.

- Lack of Regional Connectivity: While the government has promoted regional connectivity through schemes like UDAN, the infrastructure in smaller airports is often inadequate, limiting growth potential for airlines serving those routes.

External Factors

- Fluctuating Exchange Rates: Most airlines lease aircraft in U.S. dollars, making them vulnerable to currency fluctuations. A weak Indian rupee increases their leasing and maintenance costs.

- Global Economic Factors: Geopolitical issues, rising fuel prices, and global economic downturns affect demand and profitability.

Labour and Talent Issues

- Labour Unions: Some airlines have faced significant disruptions due to strikes or labour unrest. A recent mass sick leave of the ground, cabin and maintenance crew is one good example of such an issue.

- Talent Shortage: Despite being a growing sector, the Indian aviation industry has faced a shortage of skilled pilots and technical staff, driving up salaries and operational costs. Lack of awareness in the rural areas about the opportunities in the sector seems to be unsolving and happens to be one of the reasons for the talent shortage in the industry.

Legacy Issues

- Government-Run Airlines: Air India, for example, faced significant losses for years due to a mix of political interference, overstaffing, and inefficiency. Although now privatized, its legacy problems serve as an example of the difficulties in managing large airlines in India. And it may take at least another five years for the Tata-owned airlines to recover fully from the losses and negative operations that it experienced during its time under the Govt. banner.

Examples of Failed Indian Airlines

• GoFirst: The most recent airline to shut shop, though backed by a big group did not effectively manage the fleet citing reasons of COVID 19 etc.
• Jet Airways: Once a premium airline, Jet Airways collapsed due to excessive debt, mismanagement, and the inability to compete with low-cost carriers.
• Kingfisher Airlines: A victim of high debt, regulatory issues, and financial mismanagement, Kingfisher's high operating costs and aggressive expansion led to its downfall.
• Air Deccan: India’s first low-cost airline, Air Deccan, was unable to maintain profitability and was eventually absorbed by Kingfisher Airlines.

The failure of airlines in India is a result of a mix of high costs, aggressive competition, regulatory challenges, and financial mismanagement, along with an inability to adapt to market changes. However, it is quite interesting to note how the market leader, IndiGo (InterGlobe Aviation Ltd) has positioned itself as one of the world's most successful airline companies and continues to retain the streak.

With India's most successful airline, IndiGo (InterGlobe Aviation Ltd) leading the charge, now it is the turn of startups like Akasa Air and Fly91.in to prove their mettle in this tough and competitive industry. Newer players like Air Kerala and ShankhAir are also in the process of entering the market sooner or later to make the industry more competitive.

What happens to the recent boys in town and the ones expected soon is going to be a wait-and-watch game!