Govt support essential to take aviation sector back to skies
In fact, one of the aims of this government at the beginning of its tenure was to enable the masses to travel by air comfortably rather than use other modes of transport for long distances. It is thus incumbent on the Civil Aviation Ministry to ensure that user charges are reduced to the minimum for air travellers along with increasing regional connectivity
Now that the dust has settled over the sale of Air India to the Tatas, the aviation industry can expect a period of consolidation and recovery. Like airlines all over the world, the Indian aviation industry too has been battered by Covid owing to the virtual collapse of domestic and international travel during 2020. A revival has begun this year as the pandemic is gradually receding globally and passenger traffic has begun to pick up. In this country, the situation has been aggravated by controls on passenger capacity and fares though these are also slowly being removed. Airlines have been allowed to return to 100 per cent operating capacity which will bring major relief. The fare bands fixing both an upper and lower cap are still in place but look set to be removed soon as well.
The withdrawal of both capacity and fare curbs will be welcome as the aviation industry, like all others, expects higher revenues in the festival season. Besides, there is an upsurge of interest in travel by all modes of transport as people are seeking to move out after having had to remain indoor owing to various pandemic-related restrictions for a year and half. "Revenge tourism", as it is called, is likely to buoy up air traffic in the next few months. Domestic passenger numbers have already crossed the 3 lakh per day mark in the first week of October, for the first time since February this year. The current 85 per cent capacity curbs have thus rightly been eased especially since the threat of Covid is now gradually receding as vaccination numbers are rising steadily.
This will give a boost to an industry embroiled in the throes of a pandemic -induced slump since last year. Ratings agency ICRA has predicted that the effect of the global virus will result in domestic airlines suffering losses up to Rs. 25000 crore during the current fiscal, with debt levels increasing to Rs. 1.2 lakh crore. It has warned that airlines will continue to remain stressed unless they are able to reduce their debt burden through better operating performance or higher equity infusion.
In this backdrop, it is clear that some changes are ahead for the Indian aviation sector. First, the takeover of Air India by Tata Sons gives the group an edge over other smaller players as it will now have three entities in the skies, including Vistara and Air Asia. With Air India's market share currently at over 13 per cent along with Vistara at 8 per cent and Air Asia at 3.3 per cent, the group will control a 24 to 25 per cent share. This is much lower than that of Indigo which holds a commanding 58.6 per cent. Yet it puts Indigo and Tatas in control of a large segment of the aviation market. Other players are much smaller with Spice Jet at 9.1 per cent and GoAir at 8.6 per cent.
But the scenario could well change next year with the relaunch of Jet Airways and the entry of a new airline, Akasa. Much will also depend on the way that Tatas reposition Air India and Air India Express to meet the demands of the market. The latter could become a budget carrier with the former remaining as a full service airline. There is also speculation over the prospects of a merger with Vistara and Air Asia which in turn would mean an investment by Singapore Airlines in the merged entity.
Second, the aviation industry is facing serious challenges owing to rising prices of aviation turbine fuel. It accounts for as much as 30 to 40 per cent of airlines' operating costs and the prices have risen by nearly 80 per cent over the past year. This is seriously impacting the bottomlines of airlines. Profit margins have been eroded in a big way. It is possible the reversion to normal operating capacities for flights could help in curtailing losses as well as removal of caps on fares. But ICRA's forecast for losses facing the industry are based partly on the precipitous decline in passenger traffic and partly to the adverse impact of high ATF prices. With world crude oil prices continuing to rise, it looks as if there will be little respite in terms of fuel prices.
It is thus time to bring petroleum products like ATF under the purview of the Goods and Services Tax (GST). This will reduce the multiple central and state levies on such products, bringing down prices at the retail level. It will also enable airlines to get the benefit of input credit thereby ensuring big savings. The issue needs to be taken up as a priority by the central government with the GST Council. It will undoubtedly be opposed by state governments which view petroleum products as a cash cow to bring in sizable revenues. But a rational and long term approach needs to be taken both by centre and states given the impact on a critical segment of the economy.
At the same time, it is equally important to ensure that adequate passenger facilities and services are provided by airlines. Prior to the pandemic, airlines had begun to reduce baggage allowances and enhanced user charges for a multiplicity of facilities. Cancellation charges had also been raised, prompting consumer associations to seek government support. The charges may have been raised in line with global trends but passengers in this country are more price-sensitive. This is especially in case of those from tier two and tier three cities who have just begun air travel. In fact, one of the aims of this government at the beginning of its tenure was to enable the masses to travel by air comfortably rather than use other modes of transport for long distances. It is thus incumbent on the Civil Aviation Ministry to ensure that user charges are reduced to the minimum for air travellers along with increasing regional connectivity.
With post-Covid tourism and travel reviving, this is an ideal opportunity for policymakers to effectively tackle the twin challenges of providing support to the aviation sector as well as enable better passenger facilities.