India Aviation Update: Rising jet fuel prices, weakening Indian rupee, launch of new airlines and re
By – Ramesh Vaidyanathan & Mansi Singh
The pandemic wreaked havoc on the civil aviation industry all over the world but things appear to be on the mend finally yet slowly. India’s Civil Aviation Minister Jyotiraditya Scindia remained bullish when he recently stated that India’s civil aviation sector is all set to grow in terms of passengers, aircraft, and airports. It is estimated that the number of air travellers will touch 400 million by 2027. The number of aircrafts has also increased. There were about 400 aircrafts in 2013 and the number increased to 700 in 2021-22. There is an increase in the number of airports as well. In the last 8 years, the number of airports has gone up to 141, from just 74 airports in 2013-14.
Launch of new airlines and the revival of the old
India’s newest budget carrier Akasa Air, which is backed by billionaire Rakesh Jhunjhunwala, began commercial operations in August with a maiden flight from Mumbai to Ahmedabad. Jhunjhunwala, known as India’s Warren Buffett, has teamed up with ex-Jet Airways CEO Vinay Dube and IndiGo veteran Aditya Ghosh to set up Akasa.
India’s oldest private airline, Jet Airways, is also set to restart its operations from September after successfully overcoming financial hurdles. The Directorate General of Civil Aviation (DGCA) has granted the revalidated Air Operator Certificate to the new owners of Jet Airways, Jalan Kalrock Consortium.
Also, last year, the reputable Tata Group won the bid to acquire state-run Air India by offering approximately USD 2.4 billion for 100% ownership. The new owners are trying to revive the airline, working on various aspects from better customer service to new planes to higher degrees of digitalisation at the back end.
Despite the phenomenal growth that the Indian aviation industry is witnessing, there are challenges that the airlines will have to navigate. Sharp rises in jet fuel prices, weakening Indian rupee and higher interest will continue to inflict pain, just as the sector was beginning to see a ray of light through the Covid-19 clouds.
Rising Jet Fuel Prices
The price of aviation turbine fuel has increased due to the on-going geo-political tensions between Russia and Ukraine. This is undoubted expected to dent the operating costs and profit margins of airlines. While airlines are trying to pass on the costs to the passengers, the price sensitivity of the Indian market makes the task extremely challenging.
The rupee has sharply depreciated against the USD. Since almost 50% of the airlines’ operating expenses including lease payments, fuel expenses and a large portion of the aircraft and engine maintenance expenses are denominated in USD, the weakening rupee will impact the earnings of the Indian aviation industry. To add to the pressure, some airlines also have foreign currency debt.
Higher Interest Rates
The Reserve Bank of India has hiked the interest rates by 50 basis points after the US Federal Reserve raised interest rates by 75 basis points. As a result, everything from working capital lines to financing costs have become more expensive.
While the Indian aviation industry is growing at a fast pace, only the fittest will survive in this highly price-sensitive and crowded market. For example, the low-cost carrier SpiceJet is battling financial issues that are said to be behind the snags that have plagued its aircrafts lately. The airline’s summer schedule was restricted by the DGCA to half for 8 weeks, on the basis of the findings of regulatory inspections. There are also reports that SpiceJet has not been depositing statutory provident fund, has stopped providing salary slips to employees and is defaulting on payments to vendors.
So, while passengers can continue to sit back and enjoy the multiple flying options available in India, airlines will have to grapple with the daunting task of maintaining and expanding market share and profitability.