Special Report: Experts Debate Financial Viability and Safety Challenges in Indian Aviation Sector

34 minutes ago

On this Special Report, the focus is on the financial viability and safety challenges facing the Indian aviation sector. A panel of experts discusses the recurring collapse of private airlines, citing high taxes, fuel costs, and regulatory hurdles as key factors. One former airline operator notes that 'if you want to be a millionaire, spend billions in aviation business,' highlighting the difficulty of making profits in the Indian market. The programme also explores the dominance of major players, the impact of government policies, and the need for structural reforms to ensure safer and more competitive skies.

Transcript

00:00is the business model of a private airline under siege and we've seen this over the years.

00:04Several Indian airlines have seized operations over the years due to financial distress,

00:08mergers, insolvency. Remember Jet Airways, Jet Light, formerly Sahara Airways operated from

00:14the mid-90s to 2019, shut down heavy debt, intense fare wars. Naresh Goyal was even

00:21prosecuted. Air Deccan operated from 2003 to 2008, was merged with Kingfisher Airlines

00:26which itself collapsed in 2012 under a massive debt exceeding 9,000 crores. Vijay Malia is out

00:32of the country, who was the promoter. Paramount Airways also folded due to debt. Go First earlier,

00:38known as Go Airlines, operated from 2005 to 23, also entering insolvency. Smaller airlines,

00:45MDLR, Air Pegasus, Air Costa, Zoom Air, all have shut down. Air Asia and Vistara ended operations,

00:51were merged into Air India more recently. So, it hasn't been, and we'll put out the profit numbers

00:57in a moment, but Dr. Susilan, since you have been running, experience of running private airlines,

01:02is this an unviable sector across the world? Not easy to make money on aviation, but in India,

01:08it's particularly accentuated. Rahul Bhatia and Rahul Gangwal of Indigo may have got lucky at one time,

01:13but it's not enough. So, there's a say that, you know, if you want to be a millionaire,

01:19spend billions in aviation business. That's what, because you lose money in aviation business,

01:24especially when it comes to Indian market, definitely the taxes are very high. The fuel price

01:28keep fluctuating in favor of the government, not in favor of the airmen. Definitely, it's not a

01:33profitable sector within India. That's why no investor wants to invest in commercial airmen in

01:39India, because whichever example we see, whichever case studies we see, we always see in the airlines

01:43are collapsing in India. I had operated my own airline Air Udisa in Udan route, but it takes months

01:49for me to get the subsidies from the airlines. The airports were not ready. Now, we have 162 airports,

01:55but when we started the operation, and when we had built around 74 routes under Udan scheme,

02:00we got only 10 operational airports. My aircraft was parked in the hangar for days, because there was

02:06no airports. So, now, definitely the taxes are very high. If you go for not private airport,

02:11if you land in that private airport, the taxes are huge. So, we don't want to fly in that.

02:16So, you take an example of Bombay airport. We don't want to fly to Bombay airport, because we want to

02:19go to Pune, because the airport comes under airport center for India, and taxes are less there.

02:23So, definitely, business of aviation in India is not profitable.

02:27Okay, let me bring in more voices on that. Sanjay Lazar, you know, there's so much of talk.

02:31When I asked the minister, he said, our plan is to have five competitive airlines over the next

02:35five years. That's what will bring passenger fares down, will make the industry more competitive.

02:40It's not happening. I've heard this over the years, open skies. I heard Praful Patel talk about it 20

02:44years ago. Now, I hear Mr. Raman Naidu talk about it. Is that possible or not? Is there something

02:51structurally wrong?

02:53Rajdeep, two points in this question. One is, is there space, there is room for at least one full

03:01service carrier, in my view, and one really ultra low cost or regional carrier. We have space. But

03:08like Dr. Sushilan says, we are structurally long, 50 plus percent is ATF. Then you've got the taxes,

03:17your airport taxes, Qt, UDF, all this. So, it makes it a challenging task for anyone, an entrepreneur,

03:24to start an airline and grow the way Indigo or Spice or Akasa has grown. Excuse me. But government

03:33needs to look at this very carefully. If it wants more competition, if it wants to avoid the monopoly

03:38that it sees from Indigo, then it's got to restructure the operations. It's got to reduce taxes.

03:45It's got to make it more friendly. So, people come in and they're welcomed in with less of this

03:52burden. So, that's, that's one very important thing. That's the only way we're going to see

03:56expansion of this aviation sector. Otherwise, you know, like he says, billionaires will become

04:01millionaires.

04:01Right.

04:02And it's pulled up 15, 20 airlines have shut shops since 1992. And we'll only expect...

04:08You know, we've got limited time. I want to bring you in, Jitendra Bhargava. I remember you

04:13used to write about Air India, once you left Air India, about how Air India's monopoly had in a way

04:19destroyed the, ended up, or the government ended up destroying Air India because of the excessive

04:25governmental control. Today, open skies, private airlines, and we have many of the same crises

04:31coming back, crises of governance, crises of not expanding the sector fast enough. Even though the

04:37number of airports are increasing, the number of passengers are expected to grow exponentially.

04:42There seems to be somewhere something structurally wrong. What's the solution?

04:52Mr. Bhargava?

04:57Okay, let me try and...

04:58The government should stay away from the aviation sector.

05:01Yes.

05:02No, the government should simply stay away from it. They've let the private enterprise come in

05:06and run it. Yes, there are flaws in the system at the moment, as the Indigo's climbing to the

05:12market share, dominant player, 65 percent market share. But that's been entirely because they

05:17could seize the opportunity when an airline collapsed. Now, imagine if the minister says

05:21there is room for five airlines in the country. The question is, who will cede ground or market

05:27share? Indigo already has placed orders for 1,000 aircraft. Air India, 570. Both of them

05:34account for 90 percent domestic market share. And in the beginning, Rajdeep, with just one correction,

05:38you know, you made a statement on the number of pilots you had per aircraft, Indigo and Air India.

05:43Let's not forget that Air India has a large number of long-haul, large-capacity aircraft.

05:49So the requirement, when you have the rest period and all, the requirement is more in the case of Air India

05:54as compared to an airline which is operating medium-sized or small aircraft on short-haul sectors.

06:00You know, Captain Amit Singh, in a lot of the discussions so far, we haven't spoken about

06:06pilots, their concerns. You speak to them off the record. They wanted these FDATL rules. Now

06:11they've been pushed back to February. Is that a fear that pilots' concerns at the moment have lost out

06:17because of all that's happened in the last week? Their genuine concerns over their safety, stress levels?

06:24See, if you see the history of FDATL, right from 1992, 2007, FDATL was issued. It was kept under

06:36abeyance because of pressure from the airlines. Then 2011, another FDATL came. 2012, there was

06:42Mangalore crash. FDATL was more stringent rules were implemented. But again, there was a pushback from

06:49the airlines. It was kept under abeyance. And again, 2019, it was issued. 24, again, again,

06:55under abeyance. So there's always a push from the airlines. And for some reason, the rules which

07:02are meant for safety are kept under abeyance. So that is the history of FDATL.

07:06That's my fourth question. Which is exactly my question. How do you make India's skies safer

07:12and more competitive? How do you get more players and make them safer? Do you think it's possible,

07:17Captain, to do both? Make the skies safer but bring in more players?

07:23Aviation is highly regulated or rather over-regulated. Indigo itself is not a true low-cost airline.

07:28It's a hybrid airline. Because the regulatory requirements are so much that one person can do only one job.

07:35Like a security person can only do a security job. He cannot do somebody else's job. So therefore,

07:41the overheads are very high. So that is the problem, rationalization. So we have to rationalize.

07:47And then fuel is the biggest issue. Fuel, there was a proposal about two decades back that airport authority

07:56and the airlines will get their own, will import the fuel. So that will lower the taxes.

08:01Rather than coming through the state, they will get their own, they'll have their own system of fuel.

08:06So there's greed on the part of the state which wants to collect more revenue through fuel taxes.

08:15There's greed on the part of airlines which will resort to shortcuts.

08:18That question to you, Sanat Kaur, how to make India's skies safer and more competitive,

08:23is that possible? Or will we come back to this debate five years from now?

08:27No, no.

08:28So many Indian airlines have collapsed in the recent past.

08:31Yes, I think this is practical because there is an imbalance.

08:34Airports make money, airlines lose money. Now, we have an economic regulator for airports,

08:40but there is no economic regulator for airlines. I think there is a need to look into this,

08:46that why is the airports are making money, but airlines are not making money.

08:50Because of competition, yes, but there are many other reasons.

08:54The taxation, everything which is loaded onto the airlines,

08:58of course they sell their tickets after adding all these things.

09:01But there is an imbalance in my view, and the passengers suffer because they have to pay high.

09:07But I think there is a need for a full study of the aviation sector rather than piecemeal about airlines and airports separately.

09:16Right. Sherebi, do you see more players coming in, or will the Indigo experience make them even more diffident?

09:23You know, even Rahul Bhatia himself is expanding reportedly into the hotels business of Indigo.

09:29He's not necessarily only looking at the airline anymore.

09:33Do you see more airline players coming, given the fact that across the world, it's not easy to make money on airlines?

09:39I just want to put some figures. The world's largest aviation market, United States,

09:43876 million passengers, 5.2 increase from the previous year.

09:47China followed with 741 million passengers, growth rate at 18.7.

09:52UK ranked third, interestingly, to 261 million passengers, up 7.3.

09:57Spain and India comes fifth, handled 211 passengers, increasing 11.1 percent rise.

10:04So there's an increase in passengers, increase in airports.

10:07Will there be an increase in airlines making the sector more competitive and hopefully safer?

10:13Rajdeep, it's a long shot. There's a lot of structural reform necessary before that happens.

10:23But let's give credit where it's due.

10:25Indigo brought in a fair degree of innovation into the system and did a lot to cut costs.

10:30Sometimes, and now as we've learned over the years, they've lost their way, including at the cost of safety.

10:35But what we would need, and I'm going to quote Ronald Reagan here,

10:38when he said the nine most dangerous words in the English language are,

10:41I am from the government and I'm here to help.

10:43When we have the DGCA is the most successfully lobbied regulator in the country.

10:49There's a leaf they need to take out of the book of other regulators that also look into significantly heavily regulated sectors.

10:57That needs to change. Government policy needs to change.

10:59It needs to be a place where commerce happens. There is regulation on norms and safety.

11:04But there is not, we are not, if we are going to end up in this price cap mechanism, et cetera, et cetera.

11:10That's not going to inspire confidence either for markets or for new players.

11:15So long way to go.

11:16And I'm afraid you may just be sitting here five years later and asking the same question.

11:20Now you're calling for the reform of the regulator. You're saying start.

11:24I'm saying regulator and government.

11:26You've got to deregulate the regulator in a way.

11:28Or the regulator focuses on core issues rather than entering every little sector of the aviation business.

11:36Am I correct?

11:37Absolutely.

11:38Okay.

11:39I think we've got a sense from all of you of the challenges that lie within.

11:45Did it take a crisis like Indigo for us to wake up to it?

11:49That's the question that will be asked.

11:51But sometimes in India it takes a crisis for suddenly reform to take place.

11:56The aviation sector has ridden into the open skies more than two decades ago.

12:02But now in many ways, it's been a wake up call, a reality check.

12:06And that I appreciate that all my panelists, I hope, have given the government in a sense, a reality check.

12:13You're having a smile on your face, Mr. Lazar.

12:15What do you want to say?

12:16I'll give you a 30 second.

12:17What is the final words?

12:19In all this turmoil, I believe there's a ray of sunshine.

12:24And that ray of sunshine, like Sherby just pointed out, is that we can restructure our complete aviation infrastructure.

12:32Whether it's redoing the DGCA, redoing the pilots and operational structure.

12:38This is a chance to take off in a clean slate.

12:41I think, I hope, that this ministry and the PMO and everybody looks at it.

12:45Because we are the fastest growing aviation market on Earth.

12:48We are going to be number three in the next five years.

12:51And I look forward to bright aviation.

12:54You know, Indigo is a game changing airline.

12:56It's going to continue to grow.

12:58Of course we know that.

12:59We want to see others.

13:00So I hope and pray that we can make the right steps.

13:03You know, criticism is not about wanting the other guy to fail.

13:07It's about wanting them to succeed within the fine and narrow.

13:11That's what I want to say.

13:12Okay.

Special Report: Experts Debate Financial Viability and Safety Challenges in Indian Aviation Sector

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