Recently, low-cost airline SpiceJet reported an income of INR 1691.04 crore, registering a net loss of INR 124.10 crore for the first quarter of this financial year. In the previous year, the airline had registered an income of INR 1701.54 crore during the same time. This indicates a clear slide in income by about INR 10 crore this year as compared to last year. Meanwhile, the expenses have risen to INR 1782.95 crore this quarter as compared to INR 1641.93 crore in the same quarter last year.
These figures do not come as a major shock because many of the airlines in India are reeling under similar financial pressure.
The loss-making airlines in India
Things have not been looking up for the airlines industry in India. According to the Centre for Asia Pacific Aviation, a consulting firm, the airlines in India will be accumulating a loss of about USD 1.77 billion this fiscal year. It then comes as no surprise that a few days ago, independent auditors of two airlines expressed concerns over their ‘going concern’ status. ‘Going concern’ status indicates that the airlines have adequate funds and resources to carry on its day-to-day operations and to avoid any bankruptcy risks. Expressing concern would mean that the airlines may not have the potential to continue its operations. The two airlines that were named were SpiceJet and Jet Airways.
Air India, a national carrier owned by the government enterprise Air India Limited, had thoroughly dominated the market for nearly 40 years – right from the 1950s to the 90s. In the 60s, Air India was ranked among the top three when it came to the best airlines in the world. The next two decades saw it launch flights to all the five continents, even as its domestic airlines – Indian Airlines – reported healthy profits.
With the dawn of the 90s, the airlines began to face stiff competition from private players and started accumulating losses. While the new players brought in better fleet capacities and more flights, Indian Airlines continued to operate in an old fashion with not much change in its management style and continuing with its rigidity of not introducing flights on newer routes. It also believed that low-cost airlines could never be a reality.
Slowly, the once-largest operator in India slipped to fourth position in 2011. It is also during this period that the merger of Air India and Indian Airlines took place. With re-defined rules and regulations that are being adhered to strictly, the airlines has been able to make a turn-around. In 2013-14, the airlines reported a growth of 20 percent and has been able to bring down its operational losses by 44 percent.
Supposed to be the second largest airline in India, Jet Airways was launched in 1993 to take on the national carrier Indian Airlines. The 90s was in complete favour of Jet Airways and the airline marked an exponential growth during this period. In 2004, it launched its international operation. In 2007, it acquired Air Sahara. The downfall, we can say, began in 2007-08 when low cost carriers made its entry in India. By 2012, the crisis worsened and in the last financial year that ended 2014, Jet Airways reported a loss of INR 4,129 crore, its highest loss ever.
SpiceJet began its operations in May 2005 on a very vibrant note and by 2008 had become the second largest low-cost carrier in India from a market share perspective. In 2012 as fuel prices rose, SpiceJet reported a loss of INR 390 million and slipped to fourth position. Then it took some adequate steps and reported a profit of INR 50 crore in June last year. However, in the last quarter ended June 2014, SpiceJet has reported a loss of INR 124.10 crore.
Kingfisher’s story is a riches-to-rags story. It began its operation as a premium airline in 2005. The owner, liquor baron Vijay Mallya ensured that everything was perfect and had personally looked into every small and big detail – right from the brand colours to the crew uniform to the hospitality services that would be rendered inside the aircraft.
In 2007, it acquired low-cost carrier Air Deccan with a view of increasing the market share. Kingfisher then briefly ventured into the low-cost carrier segment with Kingfisher Red. However, it could never really give up the premium airline aspirations that it had begun with and continued to incur losses. The fact that the airline had never reported profit since its launch did nothing much to help the situation.
By 2012, the losses had amounted to INR 444.26 crore and it resorted to cancelling several flights in the wake of some of its accounts being frozen. This was followed by the International Air Transport Association asking people to stop booking on Kingfisher flights. To add to the woes, Kingfisher employees began protests and went on indefinite strikes. All in all, by 2012, Kingfisher lost the licence to fly and all its flights were grounded.
Causes behind the losses
The reasons can be varied. In India, increasing fuel prices and high operational costs have been often cited as reasons behind incurring loss. Then there are regulatory issues that pose impediments in the way of smooth functioning. Fluctuations in the forex rate could be another reason. Apart from this, poor management, cutting down prices to take competitors head on, poor decisions at the management level, not listening to the ‘red’ signals when airlines begin to incur losses can be some other reasons behind the losses.
Way forward, tap the potential and more
Despite the ailing health of the airlines industry in India, there are still takers who are ready to bite the aviation bullet. With the government giving approval to six more airlines, the airlines industry in India is all set to witness a new era of fierce competition and growth. Once the licences are obtained by the new players, the national route will see three new airlines – Air One Aviation Pvt. Ltd, Zexus Air and Premier Air – and the regional route will see – Turbo Megha, Air Carnival and Zav Airways.
India already has eight airlines and with six more entering, the air fares are expected to come down drastically. With this development, the airlines will also be expected to come up with new innovative ideas, if they have to book profits. Apart from this, the airlines industry in India will have to up their ante to face the pressure arising from a few international airlines who have been requesting an increase in the seat allocation.
However, considering the fact that only about 3 percent of the Indians have been travelling by air so far, there is a huge potential that is waiting to be tapped. What remains to be seen is whether the airlines will be able to identify and come up with the correct methodology to tap the unused market, even while keeping its head above losses and registering profits.