By Staff Correspondent
Indian low-cost carrier GoFirst has been ordered by the country’s aviation safety regulator, the Directorate General of Civil Aviation (DGCA), to stop selling air tickets immediately. The airline has also been issued a show-cause notice by the DGCA for failing to operate safely, efficiently and reliably and has 15 days to respond before the regulator decides whether to revoke its commercial flight permit. The move follows the airline’s insolvency filing last week, just two years after a rebranding exercise, and has raised concerns about the state of India’s aviation industry, which is still grappling with losses caused by the pandemic.
Although India’s domestic air traffic has been gradually recovering from the effects of the pandemic, the country’s airlines have struggled to remain profitable in the cut-throat aviation industry. While IndiGo was the only airline to post a profit in 2019-20, all other carriers were in the red, with state-run Air India incurring losses of INR46 billion ($616 million). In the past few decades, 17 domestic and regional airlines have been forced to exit the market due to financial troubles.
Despite these challenges, the Indian aviation industry has enormous growth potential. The Civil Aviation Ministry predicts the country will have over 140 million passengers in FY2024 alone. The CAPA-Centre for Aviation projects that India will handle over 1.3 billion passengers annually over the next two decades, with 148 airports currently operating. However, the consolidation of four carriers, including Air India and Vistara, under the Tatas is expected to make it even more difficult for smaller airlines to compete, with IndiGo and Air India combined predicted to capture 75-80% of the market, leaving only about 20% for players like SpiceJet, GoFirst (if it survives), and the newly launched Akasa.
Indian Aviation Sector Grapples With Increasing Costs & Uneven Policies
India’s aviation industry is grappling with significant challenges, including modernising its technology and managing rising costs impacting passenger growth. The Ministry of Civil Aviation governs aviation policy in India, which is regulated by the Aircraft Act 1934 and Aircraft Rules 1937. The DGCA is responsible for safety, licensing, and airworthiness.
India’s aviation sector saw a boom in the 1990s following liberalisation reforms and the breaking of the monopoly held by Indian Airlines and Air India. However, only two major airlines, Jet Airways and Sahara, survived the early 2000s. The entry of low-cost carriers in 2003 promised growth for the industry, but the government’s high taxes on Aviation Turbine Fuel (ATF) have placed significant financial pressure on airlines, contributing to between 40-50% of operational expenses.
Despite airfares in India being below the break-even point, heavily taxed ATF is the most considerable expense for carriers. Some Indian states impose provincial taxes of up to 30% on jet fuel, making shorter flight routes unsustainable for smaller airlines. Big carriers such as IndiGo leverage their scale to lower overheads and offer ultra-cheap fares on routes flown by rivals, recouping costs on less-competitive legs.
Indian aviation policy has also created barriers to entry and growth, impacting players unevenly. Most Indian airlines lease their fleets as they cannot afford one-time payments to buy planes. However, leasing adds significant costs to operations as the leases, denominated in U.S. dollars, can last only six months. Airlines must pay annual lease rents of about ₹10,000 crores to lessors, making up nearly 15% of Indian airlines’ revenues, except for Air India, which owns a significant part of its fleet.
Airlines also face high costs for using airport facilities, including aircraft landing, freight, and other charges related to the use of airport infrastructure, such as runways and passenger terminals. Although international airlines pass on the bulk of these charges to passengers, carriers in India must offer lower ticket fares to remain competitive. These charges are regulated by the Airports Economic Regulatory Authority for state-run airports, but the recent privatisation of airport operations has raised concerns about further fee hikes.
Finally, there are high costs associated with training airline crew. The shortage of pilots also reflects the need for more Flight Training Organisations in India. These challenges must be addressed before India’s aviation sector can handle modern technology and rising costs. According to aviation experts, the Indian government must implement sweeping policy changes to address these issues and foster the growth of the aviation industry.
GoFirst Fleet Grounded Due To Pratt & Whitney Engine Failures
Last week, GoFirst filed for bankruptcy at the National Company Law Tribunal (NCLT), stating that the serial failure of Pratt & Whitney’s engines was the reason for grounding 28 out of its 54 aircraft. The airline alleges that it has incurred 100% of its operational costs despite the engine failures, causing a loss of over INR10,000 crore. However, American engine maker Pratt & Whitney has disputed these claims, stating that the airline has a long history of missing its financial obligations.
The grounding of GoFirst’s fleet due to engine failures is not an isolated incident among Indian low-cost carriers. SpiceJet’s fleet has also been severely impacted, with only 47-50 of its 78-80 aircraft operational due to lessors taking back 20 aircraft over non-payment of dues. Furthermore, engine and spare part issues have grounded 13% of IndiGo’s fleet, a profitable and market-leading airline.
Experts in the aviation industry have called for an increase in the domestic Maintenance, Repair, and Overhaul (MRO) segment to address these issues. Captain G.R. Gopinath, the founder of Air Deccan, has pointed out the obstacles in bringing in parts and facilitating repair and overhaul due to complex taxes, customs, and other duties. These challenges are significant deterrents for airlines, who often prefer to send their aircraft to major MROs abroad, some of which employ Indian technicians.
The financial struggles faced by Indian airlines have led to the closure of 17 domestic and regional airlines in recent decades. Most Indian airlines lease their fleets from companies based in India rather than purchasing entire fleets due to financial constraints.
The insolvency filing by GoFirst raises concerns about the overall health of the Indian aviation industry, which is already reeling from pandemic losses. DGCA, the aviation safety regulator, has directed the airline to stop selling air tickets immediately.
