The airlines in India have been making huge losses recently.The Kingfisher airlines had to halt its operations and even struggled to pay its employees.Currently,Spice-jet has reduced its fleet and reported to have made losses of around 2000 crore in the ongoing financial year.Air India has managed to survive only because of the bail-out package announced by the government by pumping in tax-payers' money.Thus airlines incurring losses have become a norm rather than exception.
What are the reasons for airlines going in red in India?First,fuel expenses constitute almost 40 percent of the operational costs of the airlines.Nowhere in the world is the fuel as expensive as in India.The central government as well as state governments impose high taxes on Aviation Turbine Fuel(ATF) consequently raising the operational costs.
Second,all the costs of the airlines are borne in the denominations of dollars rather than rupee.The depreciating Indian rupee vis-a-vis dollar has made the overall transactions very expensive in aviation industry.Moreover,airlines like Kingfisher and Spice-jet enter into the aviation industry without having an adequate capital-base.Thus.even a slight fluctuation in business parameters render them highly vulnerable against losses.
Third,India lacks a robust manufacturing as well as maintenance base for aircrafts within its territorial boundaries.As a result,the purchasing cost as well as operational costs(other than fuel)increases manifold.Moreover,India used to hire foreign pilots and engineers due to the shortage of experienced manpower at home,which further escalates the overall costs.
The government would do well to treat aviation as an essential rather than luxury enterprise.The taxes on fuel could be lowered so that airlines have the scope to increase their profit margin.Also,foreign investments in domestic aviation industry is the need of the hour.Airlines like Jet-Ethiad,Air-Asia and Tata-Singapore airlines are likely to weather the storm as they have huge capital base.There is a need to bring in greater operational and management efficiency in its operations.In the long run,privatising Air India could be considered so as to make it efficient and profitable.
Second,all the costs of the airlines are borne in the denominations of dollars rather than rupee.The depreciating Indian rupee vis-a-vis dollar has made the overall transactions very expensive in aviation industry.Moreover,airlines like Kingfisher and Spice-jet enter into the aviation industry without having an adequate capital-base.Thus.even a slight fluctuation in business parameters render them highly vulnerable against losses.
Third,India lacks a robust manufacturing as well as maintenance base for aircrafts within its territorial boundaries.As a result,the purchasing cost as well as operational costs(other than fuel)increases manifold.Moreover,India used to hire foreign pilots and engineers due to the shortage of experienced manpower at home,which further escalates the overall costs.
The government would do well to treat aviation as an essential rather than luxury enterprise.The taxes on fuel could be lowered so that airlines have the scope to increase their profit margin.Also,foreign investments in domestic aviation industry is the need of the hour.Airlines like Jet-Ethiad,Air-Asia and Tata-Singapore airlines are likely to weather the storm as they have huge capital base.There is a need to bring in greater operational and management efficiency in its operations.In the long run,privatising Air India could be considered so as to make it efficient and profitable.
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