Indian airlines’ troubles refuse to recede.
SpiceJet’s chairman and managing director Ajay Singh has his back firmly against the wall. The airline has of late been in the news for all the wrong reasons: its aircraft have been plagued by technical snags so much so that the director general of civil aviation (DGCA) asked the airline to restrict its flying to half its approved departures, four of its leased aircraft have been returned in August alone on account of non-payment of dues - and more might be returned, its already disillusioned pilots have been resigning as and when they find an alternative and its dues to all and sundry continue to mount. Overall, the airline’s prospects of weathering the present storm look slimmer with each passing day.
Although SpiceJet appears to be the most vulnerable, profitless growth seems to be the mantra for the Indian carriers. Tata Sons’ latest annual report confirms the story. AirAsia India and Vistara’s losses widened in the financial year ended March 31, 2022 (FY22), on a year-on-year (YoY) basis due to the impact of the Covid-19 pandemic and an increase in operating costs. Both the carriers saw increases in revenues and losses. While AirAsia India’s loss grew 42% on a year-on-year basis to ₹2,178 crore, its revenue rose nearly 39% to ₹1,887 crore. Vistara’s loss rose by 35% on a year-on-year basis to ₹2,031 crore while its revenue touched ₹5,226 crore in FY22. Industry sources say market leader IndiGo, which also has red ink all over its books, is also feeling the stress as is erstwhile Air India. Many of the airlines confirm they have been flying far below their approved schedules for some weeks now, primarily due to how unviable many routes have become.
The industry, however, argues the government can in a single stroke take away some of their pain by ensuring that of every ₹100 coming to the airline, ₹70-80 is not paid to oil companies as has been happening for many weeks now. “We are in an impossible situation where we Indian carriers pay more for fuel than our foreign rivals who refuel in India,” says Ajay Singh, chairman and managing director of SpiceJet. He points out that Indian carriers have been paying a higher amount for fuel to compete with foreign carriers like Emirates to fly Indian passengers out of India and this has been happening for years.
A recent presentation made by the airlines to the petroleum ministry states that they are on the “cusp of collapse”. As things stand, Indian airlines are charged for ATF based on import parity pricing, which they argue is “grossly unfair”. As can be seen from the chart, this has risen sharply by 542% since May 2020. This and other factors have led to a situation where the airlines have totted up combined losses of ₹16,777 crore, ₹20,000 crore and will exceed ₹20,000 crore in FY 2021, FY 2022 and FY 2023, respectively.
The carriers are seeking a move from import parity pricing to “means of Platt Arab Gulf or MOPAG”, which essentially means the same prices as payable in Dubai for ATF. This would result in 15-20% savings on this count for the airlines while making the system more transparent and fair since it is index based. “This will eliminate the present discrimination and is an already available transparent mechanism,” says an airline CEO.
An Air India top management official added that it would also allow airlines to hedge their fuel costs as it would be market linked and not the published price at the airport. This would help them manage their cash outflows better. Ministry sources confirmed that this is under consideration. While the airlines would be happiest with an “export parity” pricing, this may not be fair to oil companies so some kind of midway needs to be arrived at.
Industry sources, however, argue that just the reduction in ATF prices will not be the panacea for the whole industry. “SpiceJet and others have been running on reserves for a while now and while such a measure may bring some temporary relief, the airlines need to recapitalise and strengthen their balance sheets regardless,” says a MOCA official. He says that while these smaller airlines managed to ride out the first crisis in 2020, the macro environment in many ways has worsened since and tiding over could be tougher now. The question he asks is will the Ukraine war and its unintended consequences be the final blow on the camel’s back?
There’s no denying the fact that many of the smaller airlines have been saddled with debts and vendor dues for the last two years. There is no way out but some serious cash infusion. This is the challenge facing Spicejet and other players in the industry. Where does one go from here is the several million dollar question.
(Pan, Pan, Pan is a call issued by the commander that there’s trouble but not a panicky situation like Mayday, Mayday. It’s a stage before 'Mayday' is called).
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