MUMBAI: Go Airlines India Ltd became the latest casualty in the skies battle over India this week. It’s not the first high-profile carrier to fail, and it won’t be the last.
Encouraged by an emerging middle class eager to fly, Indian airlines have ordered billions of dollars worth of planes in recent years, creating a competitive cauldron in what is now the world’s most populous nation. Even before the industry was hit by the pandemic, the struggle for survival was intense.
The lure of aviation has proved particularly attractive – and brutal – to wealthy entrepreneurs eager to break into a thriving industry and wooed by the status of airline owners. Go, run by the group of biscuit and clothing magnate Nusli Wadia, is the third high-profile billionaire-owned airline to stop flying in the past 11 years.
Here’s what makes India one of the fastest growing and most challenging markets for operators, as well as suppliers like Airbus SE and Boeing Co.
Why has Go stopped?
Once the nation’s third-largest carrier, Go has filed for insolvency protection, saying Pratt & Whitney had failed to supply needed replacement parts and engines for the Airbus A320neo jets that are the backbone of its fleet, even after he was instructed by an arbitral tribunal to do so, forcing him to land about half of his plans. The engine manufacturer, a unit of Raytheon Technologies Corp, disputed the claim.
But Go has also struggled in the past, growing more slowly than rival IndiGo, which now controls more than half of the domestic market, and borrowing heavily to pay rent, airport dues and salaries during the pandemic, when its jets have been grounded.
The airline was forced to delay an initial R36 billion ($440 million) share sale last year while many of its planes were still idle and is now tackling imminent creditor delinquencies, with liabilities of R114.6 billion. rupees ($1.4 billion).
An Indian court withdrew from judgment on Thursday, delaying a verdict in response to an appeal by the carrier as it called for respite from lessors who want their planes back.
Who else folded?
Kingfisher Airlines, founded by fugitive beer tycoon Vijay Mallya, closed operations in 2012 after failing to pay off its debts to banks, staff, landlords and airports. Naresh Goyal’s travel agent-turned-billionaire Jet Airways India Ltd has not flown jets worth $2.9 billion since going bankrupt in 2019 before things went south in 2017.
Why so many failures?
The reasons why Indian airlines fold vary, but it mostly boils down to a mix of rock-bottom fares, high fuel taxes and cut-throat competition, all recently exacerbated by the Covid disruption. A one-way ticket for a 90-minute flight from New Delhi to Mumbai on Sunday was offered for $79 on Booking.com, compared with $199 for a similar duration flight from New York to Atlanta.
Some Indian states levy provincial taxes of up to 30% on jet fuel. This is the single largest cost of airlines, accounting for more than half of expenses for some no-frills brands. Big players like IndiGo offer ultra-cheap fares on routes flown by rivals, using their reach to recoup costs on less competitive routes and leveraging economies of scale to reduce overheads.
Additionally, the Indian rupee has fallen nearly 20% against the dollar since the start of 2019, driving up the cost of leasing planes from overseas.
Does the government help?
Successive and largely populist governments have avoided offering direct support to ailing airlines. In fact, the government has sometimes even pushed carriers to cut fares even further. The previous administration allowed foreign airlines to invest in local carriers and urged states to cut taxes.
Narendra Modi’s current government has offered credit lines during the pandemic but stopped short of outright bailouts. Modi has pledged to take the state out of business, proving his credentials by selling perennially loss-making national carrier Air India Ltd to Tata Group last year. However, with Modi seeking a third term in next year’s elections, more airline bankruptcies could dent his reputation as an industry stalwart.
So why do new airlines keep popping up?
The simple answer is the allure of the market. Half of India’s population is under the age of 30, and it could become the world’s fastest growing major economy in the coming years. The nation overtook Japan as the third-largest domestic aviation market in 2016, and more local airlines are adding overseas routes.
India could face more than 1.3 billion passengers a year over the next 20 years, down from less than 200 million today, according to the CAPA Center for Aviation in Sydney, which estimates that within 40 years the Indian market it will grow from the size of Vegas to the size of the United States.
There is also a sort of prestige for rising Indian industrialists in owning an aircraft carrier. Mallya helped glamorize the business with Kingfisher, a namesake of her best-selling beer brand, by hand-picking flight attendants and hiring top models for marketing campaigns. Naresh Goyal’s Jet Airways included Bollywood celebrities on his board, with annual general meetings filled with poetry and flattery for Goyal and his family.
Just last year, now-deceased billionaire Rakesh Jhunjhunwala assembled a group of aviation veterans to run the nation’s newest airline: Akasa Air.
Can failed couriers recover?
While it’s rare for cash-strapped airlines to come back, there is precedence. SpiceJet Ltd, then owned by billionaire Kalanithi Maran, was forced to ground its entire fleet after local oil companies refused to refuel its planes on credit. However, under the new ownership of its original co-founder Ajay Singh, SpiceJet has managed to stay afloat by renegotiating contracts and cutting loss-making routes.
What’s next?
The privatization of Air India has paved the way for more consolidation. Tata Group, which already held majority ownership in two other local ventures – with Singapore Airlines Ltd and Capital A Bhd’s AirAsia – has begun to bring all the brands together under one roof. This is no guarantee of survival in India. Jet Airways, which bought budget carrier Air Sahara, and Kingfisher Airlines, which took over Air Deccan, went bankrupt.
As for Go, the court can appoint an officer to oversee the airline while terms are renegotiated with lenders and lessors. The airline insists it will recover, but has canceled all flights until at least May 9. Meanwhile the airline runs the risk of losing its trained employees and crew to rivals who are rushing to fill vacancies created by the pandemic.
Encouraged by an emerging middle class eager to fly, Indian airlines have ordered billions of dollars worth of planes in recent years, creating a competitive cauldron in what is now the world’s most populous nation. Even before the industry was hit by the pandemic, the struggle for survival was intense.
The lure of aviation has proved particularly attractive – and brutal – to wealthy entrepreneurs eager to break into a thriving industry and wooed by the status of airline owners. Go, run by the group of biscuit and clothing magnate Nusli Wadia, is the third high-profile billionaire-owned airline to stop flying in the past 11 years.
Here’s what makes India one of the fastest growing and most challenging markets for operators, as well as suppliers like Airbus SE and Boeing Co.
Why has Go stopped?
Once the nation’s third-largest carrier, Go has filed for insolvency protection, saying Pratt & Whitney had failed to supply needed replacement parts and engines for the Airbus A320neo jets that are the backbone of its fleet, even after he was instructed by an arbitral tribunal to do so, forcing him to land about half of his plans. The engine manufacturer, a unit of Raytheon Technologies Corp, disputed the claim.
But Go has also struggled in the past, growing more slowly than rival IndiGo, which now controls more than half of the domestic market, and borrowing heavily to pay rent, airport dues and salaries during the pandemic, when its jets have been grounded.
The airline was forced to delay an initial R36 billion ($440 million) share sale last year while many of its planes were still idle and is now tackling imminent creditor delinquencies, with liabilities of R114.6 billion. rupees ($1.4 billion).
An Indian court withdrew from judgment on Thursday, delaying a verdict in response to an appeal by the carrier as it called for respite from lessors who want their planes back.
Who else folded?
Kingfisher Airlines, founded by fugitive beer tycoon Vijay Mallya, closed operations in 2012 after failing to pay off its debts to banks, staff, landlords and airports. Naresh Goyal’s travel agent-turned-billionaire Jet Airways India Ltd has not flown jets worth $2.9 billion since going bankrupt in 2019 before things went south in 2017.
Why so many failures?
The reasons why Indian airlines fold vary, but it mostly boils down to a mix of rock-bottom fares, high fuel taxes and cut-throat competition, all recently exacerbated by the Covid disruption. A one-way ticket for a 90-minute flight from New Delhi to Mumbai on Sunday was offered for $79 on Booking.com, compared with $199 for a similar duration flight from New York to Atlanta.
Some Indian states levy provincial taxes of up to 30% on jet fuel. This is the single largest cost of airlines, accounting for more than half of expenses for some no-frills brands. Big players like IndiGo offer ultra-cheap fares on routes flown by rivals, using their reach to recoup costs on less competitive routes and leveraging economies of scale to reduce overheads.
Additionally, the Indian rupee has fallen nearly 20% against the dollar since the start of 2019, driving up the cost of leasing planes from overseas.
Does the government help?
Successive and largely populist governments have avoided offering direct support to ailing airlines. In fact, the government has sometimes even pushed carriers to cut fares even further. The previous administration allowed foreign airlines to invest in local carriers and urged states to cut taxes.
Narendra Modi’s current government has offered credit lines during the pandemic but stopped short of outright bailouts. Modi has pledged to take the state out of business, proving his credentials by selling perennially loss-making national carrier Air India Ltd to Tata Group last year. However, with Modi seeking a third term in next year’s elections, more airline bankruptcies could dent his reputation as an industry stalwart.
So why do new airlines keep popping up?
The simple answer is the allure of the market. Half of India’s population is under the age of 30, and it could become the world’s fastest growing major economy in the coming years. The nation overtook Japan as the third-largest domestic aviation market in 2016, and more local airlines are adding overseas routes.
India could face more than 1.3 billion passengers a year over the next 20 years, down from less than 200 million today, according to the CAPA Center for Aviation in Sydney, which estimates that within 40 years the Indian market it will grow from the size of Vegas to the size of the United States.
There is also a sort of prestige for rising Indian industrialists in owning an aircraft carrier. Mallya helped glamorize the business with Kingfisher, a namesake of her best-selling beer brand, by hand-picking flight attendants and hiring top models for marketing campaigns. Naresh Goyal’s Jet Airways included Bollywood celebrities on his board, with annual general meetings filled with poetry and flattery for Goyal and his family.
Just last year, now-deceased billionaire Rakesh Jhunjhunwala assembled a group of aviation veterans to run the nation’s newest airline: Akasa Air.
Can failed couriers recover?
While it’s rare for cash-strapped airlines to come back, there is precedence. SpiceJet Ltd, then owned by billionaire Kalanithi Maran, was forced to ground its entire fleet after local oil companies refused to refuel its planes on credit. However, under the new ownership of its original co-founder Ajay Singh, SpiceJet has managed to stay afloat by renegotiating contracts and cutting loss-making routes.
What’s next?
The privatization of Air India has paved the way for more consolidation. Tata Group, which already held majority ownership in two other local ventures – with Singapore Airlines Ltd and Capital A Bhd’s AirAsia – has begun to bring all the brands together under one roof. This is no guarantee of survival in India. Jet Airways, which bought budget carrier Air Sahara, and Kingfisher Airlines, which took over Air Deccan, went bankrupt.
As for Go, the court can appoint an officer to oversee the airline while terms are renegotiated with lenders and lessors. The airline insists it will recover, but has canceled all flights until at least May 9. Meanwhile the airline runs the risk of losing its trained employees and crew to rivals who are rushing to fill vacancies created by the pandemic.
