What is stalling Indian Airlines from flying high in the sky?

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Apurva Dhamankar

5/14/20232 min read

Indian aviation has witnessed remarkable growth in recent years, with increasing passenger numbers and the emergence of new airlines. However, despite this growth, Indian airlines still face several challenges that impede their ability to soar to greater heights.

There are three types of business models for an airline: full service, low cost, and ultra low cost

1. Full-service airlines offer a comprehensive range of services and amenities to passengers, but their ticket prices are usually higher compared to low-cost or ultra-low-cost carriers. They typically provide services such as free checked baggage, in-flight meals, entertainment systems, and more.

2. Low-cost airlines, also known as budget airlines or no-frills airlines, offer basic air travel services at lower prices.

3. Ultra-low-cost airlines (ULCCs) take the concept of low-cost carriers to an even more extreme level. They focus on providing the lowest possible fares by employing various cost-cutting measures. ULCCs often have a simplified fare structure, where passengers pay a base fare and have to pay extra for any additional services. ULCCs primarily target price-sensitive travelers and aim to offer the absolute lowest fares in the market.

India's mass audience comes from middle-class families who cannot afford the higher fare prices of the airlines, so they do not prefer the full-service airlines and instead go for low-cost or ultra-low-cost carriers.

Air India and Vistara are the only operational full service carriers while Indigo, SpiceJet, Go First and many others are low cost carriers. Erstwhile Jet Airways and Kingfisher were full service airlines.

Now we will explore some key factors that are stalling Indian airlines from achieving consistent success and reaching their full potential.

1. Infrastructure Constraints:

Indian airlines are hindered by inadequate aviation infrastructure, which leads to delays, long turnaround times, and operational inefficiencies. Insufficient infrastructure and outdated air traffic control systems contribute to airspace congestion, making it difficult for airlines to maintain punctuality and deliver seamless services. Investments in airport expansion and modernization are needed to alleviate these constraints.

2. Regulatory Environment:

The regulatory framework governing the Indian aviation sector can be complex and restrictive, posing significant challenges for airlines. Regulations related to pricing, taxation, foreign direct investment, and bilateral agreements can impact the profitability and growth potential of airlines. The pricing regulations, such as fare caps and floor prices, imposed during certain periods, can limit the airlines' ability to adapt to market conditions and optimize revenue.

3. Rising Fuel Costs:

Fuel expenses constitute approximately 35%-40% of an airline's operational costs, and fluctuating fuel prices can significantly impact profitability. Indian airlines have struggled with rising fuel costs due to global market dynamics, currency fluctuations, and taxation policies. To mitigate the impact of rising fuel costs, fuel-efficient technologies and aircraft should be developed and utilized. The usage of sustainable aviation fuel in future will reduce cost and carbon emissions.

4. Intense Price Competition:

India's aviation sector has experienced intense price competition, leading to lower fares and pressure on revenue and profitability. To sustain growth, airlines must strike a balance between competitive pricing and maintaining healthy profit margins.

5. Skilled Workforce and Training:

The shortage of skilled manpower and inadequate training facilities have been major challenges for Indian airlines. India requires 1000 pilots annually, and the commercial pilot licenses issued annually are approximately 600, causing a shortage of pilots. Investing in robust training infrastructure and collaborating with aviation training institutes can help bridge this gap.

Thank you.

Regards,

Siddharth Mehta

Kautilya IBS Mumbai.

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