Why Airlines In India Don’t Make Money

After the recent demise of Jet Airways, Air India’s financial struggles, and routine fares under $1USD, it is no secret that full-service carriers in India face an immense struggle to maintain (or regain) profitability. India’s aviation market is a unique case of so many “right” things and so many “wrong” things culminating in one of the harshest aviation markets in the world. Let’s take a look at Indian aviation.

Air India has been facing financial difficulties for some time now. Photo: Wikimedia

A booming market

India has a population of over 1.3 billion people, one of the largest in the world, making for one of the biggest untapped domestic markets. As the government pursues rapid airport development and construction, the number of travelers to, from, and within India will continue to grow.

Over the next 10-15 years, India expects to spend about $60 billion developing up to 100 new airports. These airports will largely be constructed in areas currently isolated from aviation connectivity. For Indian airlines, these new airports should be nothing short of a gold mine; however, this just isn’t the case.

Indira Gandhi Airport is a major hub for travel to India and is one of the largest airports in the country. Photo: Jet Airways

Government intervention in the market

India’s government wants to expand the aviation market, and while opening new airports should boost passenger opportunities for airlines, they have their own ideas too. For short-haul flights to smaller airports, Prime Minister Narendra Modi wants to put a $35 price cap on the fare.

Anyone who has flown short-haul within the United States knows that short-haul flights are among the most expensive flights on sale. This is partially because operating to small airports does add some extra costs for the airline. They have to hire ground staff, manage catering, fuel, baggage, etc. For full-service carriers this becomes expensive. With minimal earnings, the chances of an airline making these routes profitable are quite low.

However, anyone who knows Europe knows that some smaller airports are incredibly well connected through low-cost carriers like Ryanair or Easyjet. As low cost airlines don’t have the big overheads associated with a full service carrier, they can make these routes profitable. In these new, smaller airports in India, SpiceJet has swooped in and offered flights in lieu of full-service, traditional carriers.

SpiceJet has grown magnificently as full-service carriers struggle. Photo: Nisarg Vyas/Wikimedia

Indian carriers also face high taxes. One of the most expensive parts of an airline’s operations are fuel costs, and changes in fuel prices can help make or break an airline’s profitability goals. Couple the variability of fuel prices with India’s high tax on jet fuel, this makes turning a profit even tighter in India.

Air India

Flag-carrier Air India seems to have an endless budget, a large and inefficient workforce and an ability to avoid striving for profitability as the government seems willing to bail them out. However, there could be a time soon when Air India is no longer flying. That could give the Indian aviation market a boost.

For Jet Airways, this did not bode well. Jet Airways and Air India were in constant competition with each other. While some may argue Jet Airways had the superior hard-product, they still had to compete with Air India’s low prices on long-haul routes.

Jet Airways faced stiff long-haul competition with Air India. Photo: Jet Airways

For reference, here was Jet Airways’ business class on their 777s:

Jet Airways Business Class on a 777-300ER. Photo: Jet Airways

And here is Air India’s 777 business class:

Air India’s 777 business class. Photo: Nisarg Vyas/Wikimedia

Air India’s lower prices for long-haul business class made operating routes difficult for Jet Airways. Airlines make most of their money from business class and first class passengers, and since Air India offered low prices, Jet Airways had to lower their prices to uncomfortable levels to stay competitive.

Low-cost carriers

Low-cost carriers really took a toll on full-service carriers in India. The domestic aviation market is predominantly filled with leisure travelers who are price-sensitive. With domestic prices as low as two cents, there are very few domestic routes where either Air India or Jet Airways could turn a profit.

IndiGo and SpiceJet are some of the predominant players in the Indian low-cost market. IndiGo, in fact, is the largest airline in India by market share. Now, as they expand long-haul operations, it seems like they intend to give full-service carriers a run for their money. With Jet Airways out of the running, IndiGo might just become another of the world’s long-haul low-cost carriers.

IndiGo is the largest domestic airline by market share in India. Photo: BriYYZ/Wikimedia

In fact, SpiceJet is keen on taking over much of Jet Airways’ operations. They intend to use some of their narrowbody planes to boost capacity amid 737 MAX groundings. This could help SpiceJet save some jobs and maintain a profit as they wait for the outcome of Boeing’s 737 MAX improvements. Since low-cost carriers revolve around low-price fares, they are more likely to turn a profit while operating to airports with price ceilings.

Overall

India’s aviation market is competitive and mired with struggles. For years now it has grown by double digits, and yet the native airlines struggle to turn a profit and remain flying. From high taxes, price ceilings, intense competition, and variable fuel prices, India’s airlines navigate a complex road operationally. Time will tell what comes of India’s airlines and how the market will change.

What do you think will come of the Indian aviation market? Let us know in the comments below!

1 comment
  1. air india is the air line fr the politicians and bureaucrats….all freebies.
    that is why it is loosing money with the tax payer funding it year
    after year !! it wl die when the tax payers all die. very simple.

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