Despite the market’s breakneck expansion over the past decade, the growth of Indian aviation sector has often been profitless. Examine. (200 words)
Refer – Live mint
Enrich the answer from other sources, if the question demands.
IAS Parliament 6 years
KEY POINTS
Growth of Indian aviation market
· According to the DGCA, India’s air passenger traffic has grown by at least 16% annually over the past decade.
· It is now the third largest aviation market in the world. Yet, that growth has been largely profitless.
· It is accepted that the airline business is a risky one around the world with high Capex (capital expenditure) and low profit margins. But India is a special case even so.
Issues with the Indian aviation sector
· International factors – About 25-30% of their costs, excluding fuel, are dollar denominated and a depreciation of rupee value will hit carriers badly.
· Aviation turbine fuel (ATF) – The Centre charges 14% excise duty on ATF. The states pile on their own sales tax that can go as high as 29%.
· This is worrying since competing hubs like Dubai and Singapore charge far lower rates.
· ATF charges, vulnerable to currency movements, comprise a large chunk of Indian airlines’ operating expenses.
· Competition – The breakneck growth sets up intense competition among domestic carriers which makes it difficult to raise ticket prices.
· Regional connectivity scheme – Its goal is laudable and it may well benefit potential flyers in smaller towns.
· But, the ticket price caps it imposes under the scheme, the fact that the viability gap funding will last only for three years and various operational issues, such as the lack of slots for connecting flights at major airports, mean that carriers are, by and large, left holding the can.
· Heavy Capex requirement to keep up with market growth.
