B&E analyses the outcome of allowing foreign carriers to invest in India’s domestic airlines. Finally some good news, many presume. The reality is actually quite the opposite.
If North American carriers have set standards of growth over the years, so have airlines in India. Only difference is – for India’s domestic industry, growth has always come in a package of losses. And over the years, despite optimism galore, all we can discuss aloud are the canyons of losses which have been etched into their financial books. Exaggerated? Turn the clock back to 2006, when airlines around the world returned to their profit-making ways after half-a-decade-long patch of drought. Since then (leading up to FY2010), global airlines have recorded profits amounting to $18.70 billion. [This is despite the $25.90 billion in losses they suffered during downturn-struck 2008 & 2009.] Of this, North American carriers contributed $5.7 billion. The Indian carriers on the other hand, have been living on a prayer. Despite a 48.83% jump in total passengers carried (domestic & international; to touch 64,522,662 in FY2010-11), a 64% increase in the number of operational airports (to 82), and a 158.13% jump in fleet size, their losses have only escalated. During a five year period, when global airlines made billions, India’s domestic carriers lost $5.43 billion.
To make more sense of how our domestic carriers are stuck between the devil and the deep sea, here is a forecast from IATA. Given the recovery in the industry since 2009, airlines globally, after returning a record $18 billion in FY2010, are scheduled to record $6.9 billion in profits in FY2011. Even better, all the broad geographies are expected to make money. Carriers in North America will make $1.5 billion, Europe: $1.4 billion, Asia-Pacific: $2.5 billion, Middle East: $0.8 billion, Latin America: $0.6 billion & Africa: $0.1 billion. And India? A negative $3.0 billion in FY2011 (forecast by CAPA). Shocking.
The carnage on Indian airstrips for years now, has been visible from miles away. Woebegone tales of the big three – Air India (AI), Kingfisher (KFA) and Jet Airways (Jet) – requiring urgent cash infusion have become a daily back-fence talk in the aviation circles. [A fast fact: since FY1997-98 the big three have recorded losses and debt to the tune of $3.186 trillion – roughly three times India’s GDP in FY2010.] So have strikes by pilots and other staff, winding up of operational arms to reduce losses, and problems with ATF prices and taxes levied on it by various States (ATF currently contributes to 40% of the cost-base of Indian carriers, much higher a proportion as compared to global standards – in 2010, total fuel bill globally, amounted to $176 billion, which was 30% of industry costs, as per IATA). That the big domestic airlines got into a mode of unceremonious self-slaughter by trying to outdo each other played against them. The stifling environment did the rest.
So what is the Ministry of Civil Aviation’s (MoCA) last resort to keep the industry afloat, especially the big three? Attract investments by foreign carriers through the FDI route – MoCA suggests the limit should be 24%, while the Department of Industrial Policy and Promotion (DIPP) recommends that it should be anywhere between 26% to 49%. A piece of smile-winning news after long it seems. But will this prove manna to the ailing Indian carriers?
If North American carriers have set standards of growth over the years, so have airlines in India. Only difference is – for India’s domestic industry, growth has always come in a package of losses. And over the years, despite optimism galore, all we can discuss aloud are the canyons of losses which have been etched into their financial books. Exaggerated? Turn the clock back to 2006, when airlines around the world returned to their profit-making ways after half-a-decade-long patch of drought. Since then (leading up to FY2010), global airlines have recorded profits amounting to $18.70 billion. [This is despite the $25.90 billion in losses they suffered during downturn-struck 2008 & 2009.] Of this, North American carriers contributed $5.7 billion. The Indian carriers on the other hand, have been living on a prayer. Despite a 48.83% jump in total passengers carried (domestic & international; to touch 64,522,662 in FY2010-11), a 64% increase in the number of operational airports (to 82), and a 158.13% jump in fleet size, their losses have only escalated. During a five year period, when global airlines made billions, India’s domestic carriers lost $5.43 billion.
To make more sense of how our domestic carriers are stuck between the devil and the deep sea, here is a forecast from IATA. Given the recovery in the industry since 2009, airlines globally, after returning a record $18 billion in FY2010, are scheduled to record $6.9 billion in profits in FY2011. Even better, all the broad geographies are expected to make money. Carriers in North America will make $1.5 billion, Europe: $1.4 billion, Asia-Pacific: $2.5 billion, Middle East: $0.8 billion, Latin America: $0.6 billion & Africa: $0.1 billion. And India? A negative $3.0 billion in FY2011 (forecast by CAPA). Shocking.
The carnage on Indian airstrips for years now, has been visible from miles away. Woebegone tales of the big three – Air India (AI), Kingfisher (KFA) and Jet Airways (Jet) – requiring urgent cash infusion have become a daily back-fence talk in the aviation circles. [A fast fact: since FY1997-98 the big three have recorded losses and debt to the tune of $3.186 trillion – roughly three times India’s GDP in FY2010.] So have strikes by pilots and other staff, winding up of operational arms to reduce losses, and problems with ATF prices and taxes levied on it by various States (ATF currently contributes to 40% of the cost-base of Indian carriers, much higher a proportion as compared to global standards – in 2010, total fuel bill globally, amounted to $176 billion, which was 30% of industry costs, as per IATA). That the big domestic airlines got into a mode of unceremonious self-slaughter by trying to outdo each other played against them. The stifling environment did the rest.
So what is the Ministry of Civil Aviation’s (MoCA) last resort to keep the industry afloat, especially the big three? Attract investments by foreign carriers through the FDI route – MoCA suggests the limit should be 24%, while the Department of Industrial Policy and Promotion (DIPP) recommends that it should be anywhere between 26% to 49%. A piece of smile-winning news after long it seems. But will this prove manna to the ailing Indian carriers?
For More IIPM Info, Visit below mentioned IIPM articles
Ranked 1st in International Exposure (ahead of all the IIMs)
Ranked 6th Overall
Zee Business Best B-School Survey 2012
Prof. Arindam Chaudhuri’s Session at IMA Indore
IIPM IN FINANCIAL TIMES, UK. FEATURE OF THE WEEK
IIPM strong hold on Placement : 10000 Students Placed in last 5 year
IIPM’s Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri – A Man For The Society….
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM B-School Facebook Page
IIPM Global Exposure
IIPM Best B School India
IIPM B-School Detail
IIPM Links
IIPM : The B-School with a Human Face
