The dilapidated airline industry in India

Recently, I have been reading about the Airlines industry in India. Amidst the lockdown and the corona virus tension, the industry has been severely affected. With so less passengers willing to travel due to the virus the companies are skeptical about covering the fixed costs as well. The recent article that I read in Finshots very analytically summarizes the dreadful condition the industry. The report on the industry tries to view the industry on parameters like passenger load factor, improvement of yields and the purchase order conundrum and also tells how the players in the industry are doing to cope up with the situation.

Before I summarize the key takeaways of the report, it is very important to understand the nature of the Indian customers. The Indian customers have got habituated to low cost carriers and moreover, during this time their spending has certainly decreased a lot. The customers being so price sensitive, the airline service providers are building around their strategies in their own way to crater the passengers. The following strategies have been taken by the players of the airlines industry:

·         Indigo and Spicejet’s strategy has always been to maximize the passenger load factor which is the amount of seating capacity filled with paying passengers. With better capacity utilization and providing minimalist services, these two players according to the report, found their path to profitability. But with corona on the rise, and the government directives to fill on 33% of the seats has impacted these low cost carriers. But fortunately, they could make this rule go away along with the rule of keeping middle seats empty. But still the passenger travelling is low due to the pandemic and these carriers are facing losses on several routes

·         Air Vistara used to focus on increasing their revenues by plying on the international routes. This helped them to make profits without thinking to the passenger load factor. But now, due to lockdown on international travel, this strategy is failing badly.

·         Several airline carriers have already deferred on their new order payments and also on their lease payments. In such cases in past, it has been seen that the airlines after making such losses had to file for bankruptcy.

We sincerely hope that the airline industry gets to go past these tough times without several players getting bankrupt. Bankruptcy would only lead to monopolistic market which is always bad for the consumers. The key payers have kept their fingers crossed in the hope for some relief package or tax exemptions.

In my opinion, after some point of time commute will start again despite the pandemic. Then I believe, the consumers will consider flights to be safer than trains given the service quality and safety standards of the airlines. Till then, the government must find a way for the cash strapped airline service providers to give them some breathing space in the market. We all know how hard it is to build an industry from scratch if these players get obliterated from the market.