x Abu Dhabi, UAEWednesday 24 January 2018

Indian aviation struggles to lift off

India's efforts to reform its aviation industry is being held back by high costs, red tape and a lack of infrastructure.

India's domestic air passenger traffic fell for the 10th consecutive month in February. Dhiraj Singh / Bloomberg News
India's domestic air passenger traffic fell for the 10th consecutive month in February. Dhiraj Singh / Bloomberg News

India's aviation industry continues to be held back by high operating costs, insufficient infrastructure and other challenges, analysts say, as passenger traffic continues to slump.

Fresh data from the Directorate General of Civil Aviation shows domestic air passenger traffic fell for the 10th consecutive month in February, with almost a 3.6 per cent decline in the first two months of this year compared with the same period last year, amid a slowdown in economic growth and the absence of Kingfisher Airlines from the market.

"India has as much potential as China in terms of growth, but the aviation sector is mired with red tape, apathy, corruption and poorly run airlines," said Saj Ahmad, the chief analyst at StrategicAero Research.

"Slow investment in infrastructure and a government slow to liberalise air accords has hampered what real potential India has."

Mr Ahmad highlighted the intense competition in the country's aviation sector.

"It is unsustainable growth planning when margins are close to zero and regulation and costs strangle profitability."

Although India has a burgeoning population of more than 1.2 billion, a tiny percentage of its residents travel by air, with most people favouring rail and road transport.

Airlines have embarked on a price war, slashing fares heavily in a bid to fill empty seats. Meanwhile, there are grave doubts about whether Kingfisher, which has been grounded since October, will ever fly again.

The International Air Transport Association (Iata) has highlighted India's need to improve in areas including the safety of its aviation industry to grow the sector.

"Running an airline is a tough business," said Tony Tyler, Iata's director general and chief executive, in a recent speech.

"And operating in India presents bigger challenges than most other markets. Aviation and aviation-related tourism drives 1.5 per cent of India's GDP and supports jobs for 1.8 per cent of the workforce. A stronger aviation sector will be a catalyst for even wider economic benefits." Mr Tyler said the government had been treating aviation as "a source of taxation" rather than economic growth.

Last year, India's domestic air travel market contracted by 2.1 per cent, partly because of high taxes on fuel and rising infrastructure fees, according to Iata.

Fuel costs make up about a third of airlines' costs globally, while in India they account for 45 per cent.

The low-cost carrier AirAsia, which has teamed up with Tata to set up an airline in India, hopes to launch by June.

"Pleased to announce that company formation is done," Tony Fernandes, the chief executive of AirAsia, posted on Twitter on Friday.

"AirAsia India pvt has been formed. One more step. Been studying the Indian market hard. Exciting. We can make a difference."

The government last September opened up the aviation sector to investment of up to 49 per cent by foreign carriers for the first time. "I have not spoken this much in or about any other single country in my time at Iata," Mr Tyler added.

"The reason is twofold. The first is that India is the great potential market of the future, and the industry here has only just begun to realise its enormous promise.

"The second is that if we are to realise that future, we must successfully overcome some major issues."