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Indian Aviation: "worst-ever phase"

Yusof Sulaiman, eTN Asia/Pacific  Oct 23, 2008

When India's airline industry wobbled, economists around the world who have been touting India as one of the world's growth engines started asking questions: will China be next?

Once one of the world's “high-fliers,” India's airline industry has seen its fortunes plummet as it struggles with plunging losses. Over 50,000 jobs in the industry may be wiped out, according to industry analysts.

Often seen as India's symbol of its economic progress, the industry is looking at a combined total losses of US$2 billion this year, it's "worst-ever phase," according to the country's minister for civil aviation, Praful Patel. India's airline industry posted a combined total loss of US$938 million last year.

India's deregulation of its airline industry which started some five years ago to meet the "growing demands" of India's "emerging middle class" is now teetering on oblivion, leaving just a clutch of low-cost carriers to fight it out in the market.

A vicious price war eroded profit margins. Airlines around the Asian region, including those with ambitions to sweep the market offering 'lowest fares' should well now glance around to see if it can still be used as a business model.

India's largest domestic carrier Jet Airways last year reported losses of US$52 million, while five-star carrier Kingfisher Airlines reported a nine-month loss of as much as US$26 million.

Each airline is forced to sell tickets below cost price, according to Naresh Goyal, whose airline Jet Airways has been forced to seek an alliance with archrival Kingfisher Airlines. "Both airlines would have gone bankrupt. The industry is saddled with 30 percent excess capacity."

After sensationally announcing an across-the-board firing of 1,900 workers, Goyal who founded Jet Airways, in a dramatic "Bollywood moment" had a change of heart and rehired the sacked employees.

Kingfisher, according to industry sources, may yet axe about 3,000 employees, including pilots and engineers.

About 20 percent of non-core technical staff may also lose their jobs as a result of the alliance. "The merger necessitated cost-cutting measures."

Emphasizing the airline industry's analysis that India is among the world's worst performers, International Air Transport Association (IATA) chief Giovanni Bisignani recently said, "The airline industry in India is a mess."

Following the demise of budget carrier Air Sahara which was swallowed by Jet Airways, and Kingfisher Airlines swallowing no-frills carrier Air Deccan, the new alliance will control up to 60 percent of India's airline market, after instituting code-sharing, route rationalization and crew pooling among its cost-cutting measures.

In addition to cutting out several non- profitable sectors, the new entity plans to ground or lease out 16 of its aircraft fleet, and shelve immediate expansion plans. "We have not only overestimated the market, but been hit by the high fuel prices."

The Indian airline market will now see low-cost carriers Indigo, Go Air, SpiceJet and a few small "niche route" carriers fighting it out for market share.

Kapil Kaul from the Center for Asia Pacific Aviation (CAPA) sees a "very difficult and turbulent times" financially for the entire industry in the next two years despite aircraft makers Boeing and Airbus sticking to their forecast of selling 1,000 aircraft over the next 20 years."It's wishful thinking."

"Indian aviation has a great future," said Dinesh Keskar, senior vice-president at Boeing. Against the world average growth of just 3.2 percent, economists have forecast India will reach an annual growth average of 6.7 percent.

But among the bitterest critics of India's "go-go growth years", Jayathi Ghosh, a professor of economics at Jawaharal Nehru University in New Delhi, in a commentary said: "The poor are subsiding the rich because only a minority of Indians benefited materially from India's high growth period.

"Employment stagnated, real wages for most workers actually fell. Nearly 200,000 farmers committed suicide." In addition, India's high birth rate added millions more of hungry people and malnourished children.

Despite India's global "success" story, the current slump will further add to its litany of poor living standards. "The recent growth was not inclusive, but the slump will be."

Indian Aviation: "worst-ever phase"

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