Go Airlines India Ltd. this week became my latest victimn battle in the sky of India. This is not the first famous service provider to fail and it will not be the last.
Fueled by an emerging middle class’s thirst to fly, Indian airlines have ordered billions of dollars worth of planes over the past few years, creating a competitive edge in the country. most populous in the world today. Even before the pandemic devastated the industry, the battle for survival was fierce.
The allure of the airline industry has proven to be particularly appealing — and brutal — to wealthy entrepreneurs eager to enter a burgeoning field and drawn to the status of owning an airline. air. Go, run by the conglomerate of biscuit magnate Nusli Wadia, is the third most popular carrier owned by a billionaire to have stopped flying in the past 11 years.
These are the things that make India one of the fastest growing and most demanding markets for operators, as well as suppliers such as Airbus SE and Boeing Co.
Why Go Stop?
Once the nation’s third largest carrier, Go seeks insolvency protection, says Pratt & Whitney failed to deliver parts and the replacement engines needed for the Airbus A320neo jets that form the backbone of the airline’s fleet, even after being authorized to do so by an arbitration court, forced the airline to ground about half of the aircraft. his flight. The engine maker, a unit of Raytheon Technologies Corp., denied the claim.
But Go has also struggled in the past, growing slower than rival IndiGo, which now controls more than half of the domestic market and borrows heavily to pay rent, airport fees and salaries in pandemic period when their jets were grounded.
The airline was forced to delay an initial share sale of 36 billion rupees ($440 million) last year while many of its planes remained idle and now faces imminent default. with 114.6 billion rupees ($1.4 billion) in debt.
An Indian court on Thursday reserved the ruling – delaying the ruling in response to pleas from the carrier as it seeks respite from lessors who want to return their planes.
Who else has rushed?
Kingfisher Airlines, founded by runaway beer magnate Vijay Mallya, ceased operations in 2012 after failing to pay debts with banks, employees, lessors and the airport. Travel agents become billionaires Naresh Goyal’s Jet Airways India Ltd. has not flown since bankruptcy in 2019. Smaller airlines in the region have also ceased operations in recent years, including Air Costa, which surprised the aviation world last year. 2014 with an order of 50 Embraer SA jets worth $2.9 billion before everything fell apart in 2019.
Why so many failures?
The reasons why Indian airlines are folding vary, but are mainly due to cheap fares, high fuel taxes and fierce competition, all recently compounded by disruptions from Covid. One-way tickets for a 90-minute flight from New Delhi to Mumbai on Sunday are offered for $79 on Booking.com, compared with $199 for a similar length flight from New York to Atlanta.
Some Indian states impose a provincial tax of up to 30% on jet fuel. That’s the biggest cost for airlines, accounting for more than half the cost of some budget brands. Big players like IndiGo offer ultra-cheap fares on routes flown by competitors, use their accessibility to recoup costs on less competitive routes, and exploit economies of scale to Cut the cost.
In addition, the Indian rupee has fallen by almost 20% against the dollar since the start of 2019, increasing the cost of chartering planes from abroad.
Does the government help?
Successive and largely populist governments have shied away from directly supporting struggling airlines. Indeed, governments sometimes even push carriers to cut fares even further. The previous administration allowed foreign airlines to invest in local airlines and called on states to reduce taxes.
The current government of Narendra Modi has provided lines of credit during the pandemic, but has stopped providing bailouts altogether. Modi has pledged to steer the state away from business, proving his credibility by selling longtime loss-making airline Air India Ltd. for Tata Corporation last year. However, with Mr. Modi seeking a third term in elections next year, more airline failures could undermine his credibility in favor of the industry.
So why do new airlines keep popping up?
The simple answer is market attractiveness. Half of India’s population is under the age of 30 and the country could become the world’s fastest growing major economy in the coming years. The country overtook Japan to become the third largest domestic airline market in 2016, and many local airlines are adding overseas routes.
India could be dealing with more than 1.3 billion passengers a year in the next 20 years, compared with less than 200 million today, according to Sydney-based CAPA Center for Aviation, which estimates that within 40 years, The Indian market will grow from the size of Las Vegas to the size of the United States.
There is also a sign for the rising Indian industrialists in owning an aircraft carrier. Mallya helped make the business famous with Kingfisher — the name of his best-selling beer brand — recruiting flight attendants and hiring top models for marketing campaigns. Naresh Goyal’s Jet Airline includes Bollywood celebrities on its board, with annual general meetings filled with poetry and tributes to Goyal and his family.
Just last year, deceased billionaire Rakesh Jhunjhunwala assembled a team of aviation veterans to run the nation’s newest airline: Akasa Air.
Can the faulty carrier recover?
While it’s rare for airlines short of cash to return, there’s still a preference. SpiceJet Ltd., then owned by billionaire Kalanithi Maran, was forced to decommission its entire fleet after local oil companies refused to fuel their planes according to the picture. credit knowledge. However, under new ownership by original co-founder Ajay Singh, SpiceJet has managed to stay afloat by renegotiating contracts and cutting loss routes.
Air India’s privatization has paved the way for more consolidation. Tata Group, which already holds a majority stake in two other local joint ventures — with Singapore Airlines Ltd. and Capital A Bhd.’s AirAsia — has begun bringing together all the brands under one roof. That is no guarantee of survival in India. Jet Airways, which bought low-cost carriers Air Sahara and Kingfisher Airlines, has taken over air purifierboth went bankrupt.
For Go, the court could appoint an official to oversee the airline while terms are renegotiated with lenders and lessors. The airline has confirmed it will recover but has canceled all flights until May 9. In the meantime, it risks losing staff and trained crews to competitors jostling for space. caused by the pandemic.