Cheap flight tickets are killing airlines in India’s fierce market

This is a time when Global Aviation carriers have swarmed to India tempted by Indian customers who prefer to travel flights more for cheap flight tickets and with this trend, India is expected to be the world's third biggest aviation market by 2025.

However, talking about profit Indian airlines are going through difficult times. InterGlobe Aviation Ltd., which run IndiGo, one of India's major budget carrier have seen last month’s 97 percent drop in quarterly profit. Jet Airways India Ltd, a pioneering carrier in Indian aviation industry also marking fall of stock price and it said it needs cash to meet liquidity requirements. Jet Airways burdened with $1.2 billion in net debt whereas IndiGo’s having $1.6 billion of net cash.

Right now Indian Aviation market is experiencing financial distress triggered by a crushing fare war and rising fuel price that made situation impossible for foreign carriers, ranging from Malaysia’s low-cost AirAsia Group Bhd. to Singapore Airlines Ltd. The competition will be intense if Qatar Airways will start a short-haul airline in the country which it has proposed.

The Indian commercial aviation industry has been struggling over the years since the Government discontinued the monopoly enjoyed by Indian Airlines in 1994. In 2012 Debt-burdened Kingfisher Airlines stopped its operations and 10 other domestic carriers remain locked due to profitlessness, in spite of operating in the world’s fastest-growing aviation market.

According to the International Air Transport Association in almost every month since 2012 revenue passenger kilometers (a measure of demand) have grown faster than available seat kilometers (a unit of supply). In June, when the industry was crashing, domestic air travel increased by 17.6 percent. It is the fastest growth for any major aviation market including China.

Indian carriers pay the world’s maximum jet-fuel prices, the chief reason behind this is the local taxes charged of as much as 30 percent. Nevertheless, the real spoiler has been a fare war that’s driven by cheap flight tickets which is so low that they can hardly cover costs.

Since budget carriers like IndiGo and SpiceJet Ltd. entered the market mid-2000’s, full-service carriers like Jet Airways that charge higher overhead costs -- for in-flight meals and entertainment -- have been compelled to offer discounts to passengers looking for a great bargain.

Rahul Bhatia, the co-founder of InterGlobe Aviation Ltd. that operates IndiGo, told analysts last month that Such fares are “not sustainable,” yet there’s “no choice” but to keep offering them, after almost all of its quarterly profits were wiped out. Even though IndiGo has never lost money since the company going public in 2015. On the other hand, Jet Airways is hindered by higher costs and maintenance charges in order to sustain cheap flight tickets

Low oil prices have caused Jet Airways profit to slump 15 percent from as high as 36 percent in the mid-2000s. It has reported a profit in only two of the last 11 financial years.

The root of the problem explained by Kapil Kaul, the chief executive officer for South Asia at Sydney-based CAPA Centre for Aviation,“The cost of running an airline in India is not adequately compensated by fare inputs. That is the fundamental issue.”So cheap flight tickets are killing aviation industry in India slowly and slowly.