Introduction
The Indian aviation industry has been experiencing significant growth in recent years. It is one of the fastest-growing aviation markets in the world, with a high demand for both domestic and international air travel. The industry is supported by a growing economy, rising income levels, and a large population with a growing propensity to travel. In addition to passenger airlines, the Indian aviation industry also has a growing cargo sector, with companies like Blue Dart and SpiceXpress providing air cargo services across the country. The Indian government has been taking various initiatives to support the growth of the aviation industry, including the development of new airports and the modernization of existing ones. The government has also launched the Regional Connectivity Scheme (UDAN) to improve air connectivity to remote and underserved areas of the country. However, despite this growth, several airlines have folded in recent years, leaving many wondering why this is happening. With Spicejet already struggling to survive, Go First is the latest in the list of airlines unable to withstand their business.
What happened with Go First?
Go First (formerly known as GoAir), one of India’s leading low-cost airlines has been facing financial challenges for some time. The airline, which operates primarily in the domestic market, has been struggling to compete with bigger players like IndiGo and SpiceJet, which have a larger market share and greater financial strength. The Covid-19 pandemic further exacerbated Go First’s financial difficulties. The airline was forced to suspend operations during the nationwide lockdown in 2020, and even after resuming operations, it faced reduced demand for air travel, resulting in lower revenues. In May 2021, Go First’s financial troubles came to a head when it was reported that the airline was on the verge of insolvency. The airline had accumulated significant debts, including unpaid salaries to employees, and had been unable to secure additional funding from investors. Despite efforts to improve its financial position, such as reducing its fleet size and cutting routes, the airline was unable to achieve profitability. The company’s financial troubles were also compounded by its ownership structure. The airline is owned by the Wadia Group, a diversified conglomerate that also has interests in textiles, real estate, and consumer goods. The Wadia Group’s other businesses have also been facing financial challenges, further limiting the group’s ability to support Go First financially. In response to its financial challenges, Go First had been exploring various options to raise capital, including seeking a buyer for a controlling stake in the airline. However, no buyer was found, and the airline’s financial situation continues to be precarious. And thus, the company finally halted its operations and filed for insolvency. The insolvency process will be managed by the National Company Law Tribunal (NCLT) and a resolution professional will be appointed to manage the affairs of the airline during the process. The objective of the insolvency process is to find a new investor who can take over the airline and revive its operations. If no investor is found, the airline may be liquidated.
Why are Airlines failing in India?
India’s aviation industry has seen significant growth in recent years, with more people flying than ever before. However, private airlines in India have struggled to survive, with many failing over the past decade. One of the biggest challenges facing private airlines in India is the intense competition from established players like IndiGo and Air India. These airlines have strong brand recognition, loyal customer bases, and extensive route networks, making it difficult for new entrants to compete effectively. With a large number of airlines operating in the country, competition for passengers is fierce, and profit margins can be slim. This is particularly true for low-cost carriers, which make up a significant portion of the market. These airlines often operate on thin margins and rely on high passenger volumes to stay afloat. Besides, running an airline is an expensive business, and private airlines in India often struggle with high operating costs. Fuel prices, airport charges, and maintenance costs are all significant expenses for airlines, and these costs can be difficult to manage when revenue streams are limited. Fluctuations in global oil prices can have a significant impact on the profitability of airlines, particularly for those that are struggling to maintain high passenger volumes. The Indian aviation industry is also heavily regulated by the government, and private airlines often face challenges in obtaining necessary licenses and permits. Additionally, the government imposes various taxes and fees on the industry, which can be a significant financial burden for airlines. Although Government has been working on improving infrastructure, the airports and air traffic control systems are often overcrowded and outdated, causing delays and disruptions for airlines. Finally, poor management is a common reason why private airlines fail in India. Airlines require strong leadership, effective cost management, and strategic planning to succeed in a highly competitive industry. However, many private airlines in India have struggled with mismanagement, which has led to financial losses and ultimately, bankruptcy.
What are the costs of operating flights?
The Indian aviation industry faces various costs that impact airlines’ profitability and passenger growth. Aviation policy is regulated by the Ministry of Civil Aviation and the DGCA, which is responsible for safety, licensing, and airworthiness. However, experts argue that India has not kept pace with modern technology, which has increased costs to the industry. Although no-frills brands faced intense competition, the government levies high taxes on Aviation Turbine Fuel (ATF), which contributes to 40-50% of operational expenses. Some Indian states also impose provincial taxes of up to 30% on jet fuel, making shorter flight routes unsustainable for smaller airlines. Leasing also adds high costs to operations as about 80% of India’s total commercial fleet is leased, and airlines pay annual lease rents of about INR 10,000 crores to lessors, making up nearly 15% of the revenues of Indian Airlines, except Air India. The costs of these leases go up further when the Indian rupee depreciates during short and long-term global financial developments. Airlines also bear costs related to airport fees for the use of airport facilities, including aircraft landing, freight, and other charges related to the use of airport infrastructure such as runways and passenger terminals. While internationally, airlines pass on these charges to passengers, carriers in India have to remain competitive and offer lower ticket fares to increase reach. Lastly, there are high costs associated with the training of airline crew, and the inadequate number of Flight Training Organisations has led to a crunch in pilots.
