What Happened to the Indian Aviation Market?

For a period of time, things were looking up for the Indian aviation market. Airport development was bustling, airlines were expanding, and new routes were connecting cities that had never before had access to air travel. With a growing middle-class population, 68 million passengers were flown at the end of March 2009. Yet, something went amiss in India.

When Jet Airways ceased operations earlier in 2019, 20% of India’s entire airline fleet suddenly disappeared from the air. The final demise of Jet Airways followed months of financial struggles and flight cancellations, with major Indian banks eventually refusing to provide any additional cash to prop up the airline.

The number of Indian passengers is booming, and they’ve got places to go. Why is it so hard to find success in the Indian aviation market?

A Fierce Fare Battle

Despite being a relatively new market of consumers, Indian travelers are extremely price-savvy, and on many routes, have a reasonable amount of choice on who they travel.

When Jet Airways started operations in 1993, it’s only competitor was the state-run airline, Air India. This changed over time, with a number of new competitors entering the market embracing the revolutionary low-cost carrier model. When airlines like Jet Airways attempted to compete with low-cost carriers like IndiGo, the differences in their cost and operating models became blatantly obvious.

Despite the launch of JetLite as a low-cost subsidiary (and, bafflingly, a second low-cost carrier called Jet Konnect), the higher cost structure of Jet Airways didn’t encourage the type of fare competition that the airline needed to be attractive.

Fares have, perhaps unsurprisingly, risen drastically after the failure of Jet Airways. However, with airlines such as IndiGo, SpiceJet and Vistara having over 1,000 planes on order, it’s likely that the competitive fare-gouging present prior to Jet Airways collapse will again make an appearance. Despite the ongoing financial struggle to be profitable in India, it does seem that there is money to be made – and you have to hand it to the tough ‘stick it out’ attitude displayed by many Indian airlines.

The Failure of Jet Airways Wasn’t Exactly a Surprise

Remember Kingfisher Airlines? Owned by one of the largest liquor tycoons in India, and with considerable financial backing, it attempted to commence business in a notoriously rough period in the aviation industry. With huge maintenance and employee costs, and a poor focus on the areas that mattered to fickle Indian consumers—including timeliness and cleanliness—Kingfisher Airlines went belly up in 2012. India is now trying to extricate its British located founder, Vijay Mallya, over fraud charges amounting to a billion pounds. Air India itself, the country’s flag carrier, failed a privatization attempt in 2018, and is surviving on cash injections.

As a country, much like China, the focus can often be on style rather than the substance. Earlier in 2019, the Veer Surendra Sai Airport in Odisha was opened to much fanfare. Less than a month later, the airport stopped operating, as its only carrier—Air Odisha—failed to operate. Despite being a massive, established operation, Jet Airways posted losses in eight of the last ten years of its operation. In 2013, it was only saved from bankruptcy by a partial purchase by Etihad. It wasn’t entirely surprising to see it go down the pipes.

So how do other competitors, such as IndiGo, plan to succeed where Jet Airways failed? For one thing, IndiGo works on the basis of a fairly healthy cost structure, coupled with economies of scale. For example, it’s smallest aircraft order—ever—was apparently 100 airframes. Purchasing that amount of aircraft at once is sure to create certain financial benefits, and places the airline in a better position to negotiate on one of its overall largest areas of spending.

A Competitive International Market

It would have been a tall order for an airline like Jet Airways to compete with the likes of Emirates or Singapore Airlines on long-haul international flights. Unfortunately, it still tried. With the cashed-up middle class preferring big international brands over local offerings, the most obvious step would have been for Jet Airways to make the leap to low-cost carrier—and compete directly with IndiGo. As noted earlier, its foray into low-cost delivery was as a subsidiary operation, rather than via a total restructure of operations.

In saying that, Indian low-cost carriers are struggling with their own issues, too. IndiGo announced its first loss ever in 2019, and SpiceJet is looking to diversify to stay afloat. A depreciating rupee and increasing fuel prices are both causing widespread issues in the sector, with no foreseeable improvement. This is despite most carriers filling around 90% of seats – an enviable level given the Asian average of around 82% load factor in June 2019. Jet fuel prices are around 40% of total costs for an Indian carrier and are taxed at a much higher rate than a number of other countries. Despite a large number of passengers flying, even a minor drop in yields in the context of a high crude oil cost can have a large impact on the airline’s bottom line.

The Boeing 737 MAX Debacle

Usage of the Boeing 737, the staple of the low-cost carrier market, has led to other problems. Unfortunately, several airlines in India have fleets containing the 737 MAX, including SpiceJet. Following the grounding of the 737 MAX fleet, in March 2019, SpiceJet was forced to cancel a number of flights due to a lack of available operating aircraft. IndiGo opted for the a321neo, thus avoiding the issues of the 737 MAX, but this has come with its own problems—namely, the Pratt & Whitney engines that power these planes have experienced a range of issues since they entered service.

Jet Airways had a number of 737 MAX in their fleet, which certainly didn’t help their ongoing troubles. Given that American Airlines has extended its 737 MAX cancellations until at least November 2019, it seems likely that Indian operators will follow suit.

The Wider Implications of Failure

The repercussions of the struggles in the Indian aviation market have a wider effect, too. Etihad Airways, which has suffered from a number of poorly judged investment decisions, was a shareholder in Jet Airways. With three high-profile insolvencies amongst Etihad’s investments in the last few years (two of these alone resulting in a combined write-down of $808 million), it’s unlikely Etihad would be able to continue operations if it wasn’t for the gold-plated subsidies of the United Arab Emirates government.

In addition, the failure of Jet Airways and the cancellation of their 737 MAX order for additional aircraft may seem like a drop in the bucket for an organization like Boeing. However, given Jet Airways had 200 of the 737 MAX on order, this cancellation was actually rather significant. On 1 October 2019, those airlines that have delayed orders for 737 MAX aircraft may, under specific circumstances, have the right to cancel those orders. This could cause a major headache for Boeing, who is likely to see Airbus overtake it in deliveries during 2019.

A Financially Uncomfortable Situation

It’s a shame, really, given that India was also one of the most progressive airlines in the world when it came to training and hiring female pilots. In 2018, the percentage of women pilots in India (12.4%) was twice that of the international average—5.4% percent. Around 10% of these women operated as Captains.

I suspect there is a good reason why India has embraced female aviation. Despite several high profile airline failures, India cannot train enough pilots. It sends its students as far as New Zealand to put them through their paces. With an estimated additional 10,000 pilots needed in the next ten years, even the cessation of an airline like Jet Airways won’t fill the long-time void of trained aviators.

However, training new students won’t help the fact that some current airlines are struggling to pay their staff. Jet Airways staff were obviously left in the lurch following its collapse, but thousands of Air India staff didn’t receive salaries earlier in 2019 due to the airline’s “uncomfortable financial position“. Thankfully, IndiGo and Vistara seem to be on the lookout for new talent, whilst also providing a certain level of financial assurance to staff members.

It seems safe to say that it’s a tricky period for Indian aviation. The awkward tension between growing demand but decreased popularity, coupled with a burgeoning skills crisis, has created a very interesting operating environment. Most disappointingly for consumers, though, is the fact that Jet Airways was actually a beloved airline. Its absence will leave a hole in the Indian aviation market, and it seems like the industry is in for a bumpy few years.

 

[Featured Image: Shutterstock]