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Airlines Industry - A sector in trouble

All the scheduled Indian airlines have posted an aggregate operating loss of Rs. 7,088 crore in 2018/19 (provisional) from a combined operating profit of Rs 913 crore in 2017/18. The aviation sector is not in the pink of health. Q) What is troubling this sector? A) High fixed costs, extensive regulations, inadequate market supply of pilots and inability to recruit and retain key talent, airport infrastructure and slot constraints at key airports, as well as operational issues with certain types of aircrafts (such as A320 neo engines) are some of the key reasons troubling this sector recently. Q) How can we deal with the current crisis in this industry? A) Like most other businesses, the airlines companies need to keep a check on its key revenue and cost metric as measured by RASK (Revenue per Available Seat Kilometre) and load factor for its cargo business. Q) Your take on the ATF prices A) Aviation Turbine Fuel (ATF) expense is the single largest expense for any airline which is heavily dependent on crude oil prices, and the several economic and political factors that govern them. With the recent spike in crude oil prices and the dollar index climbing in the past one year, ATF prices will continue to rise in the near term. Q) What is the near-term outlook for this sector? A) India is the seventh largest aviation sector in the world according to IATA and growing strong due to a rising middle class population. The sector faces tough internal competition amongst its top players; however, a robust economic growth is expected to attract high FDI inflows in this sector in the coming years making it one of the attractive sectors. The Indian government is also expected to invest about USD 1.8 billion for the development of airport infrastructure and aviation navigation services by 2026, and develop greenfield airports under the Public Private Partnership (PPP) model.

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