New airline launches have been an almost regular occurrence in India since 2003, but all the new players are losing money and aviation minister Praful Patel says the government is concerned.
He told local media that new licences will continue to be issued for start-up airlines but "pending applications will go through very, very high scrutiny" from now on. The aim is to avoid a repeat of the 1990s, when many new airlines were allowed to start operating only to shut down within a few years as a result of overcapacity and big losses.
"Applicants must now come up with clear business plans outlining how many engineers and trained pilots they have, whether they have aircraft leases, among other things," said Patel. "There will be no rapid roll-out of licences. I don't want a repeat of 1991."
Until 2003 there were few scheduled airlines in India but since then several aggressive new players have launched, such as Air Deccan, GoAir, Indigo, Kingfisher and SpiceJet. Several other groups are meanwhile still planning to establish new carriers.
The number of passengers flying domestically is now growing at rates in excess of 20% annually, in large part because ticket prices have fallen sharply. But most Indian carriers are suffering heavy losses, as capacity has increased too quickly and as fares have been slashed in a bid to win market share.
Air Deccan, for example, recently reported a net loss of Rs3.4 billion ($74 million) for the 15-month period between April 2005 and the end of June 2006. It released earnings for the 15-month period as it recently changed the end of its financial year to June from March. The carrier, India's first no-frills operator, originally hoped to break even in the current financial year, but executives now say they do not expect to post profits until 2008.
Meanwhile, rival SpiceJet has posted a net loss of Rs178.1 million for the June-August quarter, despite huge growth in revenue as it ramped up operations. Kingfisher also has been suffering steep losses since its launch last year, while well-established Jet Airways has fallen into the red too.
Jet in October reported an after-tax loss of Rs1 billion for the first half, citing overcapacity in the market and more fare discounting. It says around 140,000 seats per day were being offered industry-wide in India in September, compared to around 100,000 in September last year.
"The demand-supply imbalance has resulted in a soft yield environment for the industry," it says. "As a result of widespread fare discounting, industry-wide average revenue per passenger was lower by 15% versus a year ago."
One would-be new scheduled carrier, Jagson Airlines, says the tougher regulations have not yet been formally introduced through written legislation, but the minimum paid-up capital requirements have already risen from Rs300 million to Rs500 million on an informal basis and this has impacted its plans.
Some analysts have criticised the Indian government for taking a tougher regulatory stance. "I have one word of advice when it comes to preventing new airline entry - don't," says Centre for Asia Pacific Aviation executive chairman Peter Harbison. "It is vital for India's private airlines to find their own way to profit. Government intervention, unless there is a very clear and transparent framework, would very quickly undermine investor confidence. Not just in the airline industry, but also for airport investors and tourism infrastructure providers."
Source: Airline Business
