The Indian Aviation Industry - A Turbulent Flight

The liberalization of the Indian economy in the 1990s paved the way for private airlines to
spread their wings in the country's aviation sector, ending decades of monopoly by state-
owned carriers. From just one airline in 1994, India saw a proliferation of private airlines
over the next decade, marking a new chapter in the history of its aviation industry. However,
fierce competition, high operational costs and systemic inefficiencies soon pulled the sector
into heavy turbulence, leading to mounting losses and multiple airline failures. Even as the
industry grappled with these issues, the Covid-19 pandemic dealt a crushing blow in 2020,
throwing the already beleaguered aviation sector into an unprecedented crisis1.
Growth and Challenges of Indian Aviation Post Liberalization
In the early 1990s, India had just two main carriers - the government-owned Indian Airlines
operating domestic routes and Air India for international operations. The Open Skies policy
of 1990 opened doors for private air taxi operators to launch scheduled services 2. The entry of
new players like Jet Airways, Air Sahara, Modiluft, Damania Airways and East-West Airlines
unleashed a price war, expanding the market but also leading to losses 3. Jet Airways and Air
Sahara launched in 1993 and 2001 respectively, challenging the monopoly of state-run Air
India. From just 12 lakh passengers in 1990, India's air traffic grew to 1.5 crore in 2000 and 6
crore in 2010.
However, the increase in number of flights did not translate into profits, as cut-throat
competition led to sustained losses. Issues like high fuel costs, expensive airport charges,
fleet acquisition costs and sales tax further eroded viability. Regulatory uncertainties around
bilateral rights for international routes and FDI limits in airlines also impeded growth.
Between 1995-2010, a slew of airlines like Damania, Modiluft, East-West were shuttered due
to financial troubles. Nevertheless, the industry continued to expand rapidly over the next
decade buoyed by rising incomes and lower fares.
2. Causes of Airline Insolvency in India
The Indian aviation industry faces multiple challenges that have contributed to many airline
insolvencies over the past 15 years. Key factors driving financial troubles include fluctuating
fuel costs, strategic errors like overexpansion or price wars, inflexible labor contracts and
external shocks.
2.1 Impact of Aviation Fuel Price Volatility
As major cost center for airlines, volatile prices for aviation turbine fuel (ATF) in India
significantly impact bottom lines. ATF prices fluctuate with international crude oil markets,
changes in rupee-dollar exchange rates, y uneven tax regimes across Indian states. Over the
past decade, there have been wild swings in prices – from Rs. 35,000 per kiloliter in 2009 to
Rs. 76,000 per kiloliter in 2013 then back to Rs. 63,000 per kiloliter in 2016 before rising

1
Seth, B., Saxena, P., & Arora, S. (2023). Operational performance of Indian passenger airlines using
hierarchical categorical DEA approach. Operational performance of Indian passenger airlines
2
Attarwala, A., & Bhosale, C. S. (2014). GENESIS AND GROWTH OF INDIGO AIRLINES AS AVIATION
LEADER - CHALLENGES AND OPPORTUNITIES FOR INDIAN AVIATION SECTOR - A CASE STUDY
ON INDIGO AIRLINES. Sai Om Journal of Commerce & Management: A Peer Reviewed International
Journal, 1, 1-8. GENESIS AND GROWTH OF INDIGO AIRLINES
3
Explained: The rise and fall of private airlines | Explained News - The Indian Express
again to Rs. 90,000 per kiloliter in 2019. These fuel price fluctuations have repeatedly led
airlines into financial distress when they cannot pass on costs due to fierce market
competition4.
2.2 Strategic Mismanagement
Another key reason behind airline insolvencies in India has been poor strategy and
mismanagement of finances, growth, y operations. For example, Kingfisher Airlines
rampantly expanded its fleet from just 18 aircrafts in 2007 to 107 by 2011 while also
lowering ticket prices to drive demand. This overexpansion without revenue discipline
overwhelmed operations, led to massive losses of over $1 billion. Similarly, Jet Airways
excessively leased aircrafts without owning assets while also getting into price wars, resulting
in unsustainable debt levels. Excessive competition, especially from budget carriers, also
strained pricing power. Such strategic errors have been a recurring theme in airline
insolvencies.
2.3 Rigid Labor Agreements
Inflexible labor contracts have también exacerbated cost pressures for Indian carriers. High
salary structures along with lack of variable pay components tied to company performance or
profitability have created rigid cost structures. Layoffs due to restructuring face resistance
from trade unions. State sales tax on ATF también varies across India, creating unequal
operating conditions. These rigidities have limited the financial options y competitiveness of
Indian airlines5.
2.4 External Shocks like Pandemics
The COVID pandemic devastated passenger airline revenues globally, including India.
Domestic air travel fell from 140 million passengers in 2019 to just 60 million in 2021.
International travel remains muted due to quarantine restrictions. This revenue crunch was an
external shock that pushed airlines like Air India and SpiceJet to the brink of collapse. The
industry underwent major restructuring and consolidations, with Tata Group taking over Air
India. Such external shocks add to the sector’s volatility.
Aggressive expansion by airlines without adequate resources, intense fare wars and high
fixed costs have been the underlying reasons behind the dismal financial performance of
Indian carriers over the past decades.
A review of financial data shows most Indian carriers bleeding red over the years barring one
or two profit making exceptions. For instance, market leader Indigo reported consistent
profits between 2016-2019 but saw losses of ₹2,844 crore in 2020 due to the pandemic's
impact6. Vistara has also managed to contain losses in the first few years of operations.
However, other big carriers reflect the turbulent state of affairs. Air India has been making
losses since its 2007 merger with Indian Airlines7.

4
"Assessing Airline Bankruptcy in India" by S Verma and S Shome (2020) Assessing Airline Bankruptcy in
India | SpringerLink
5
Financial Distress in Indian Aviation Industry: Investigation Using Bankruptcy Prediction Models | Eurasian
Journal of Business and Economics (ejbe.org)
6
https://timesofindia.indiatimes.com/business/india-business/lockdown-impact-indigo-reports-rs-2844-crore-
loss-in-april-june-quarter/articleshow/77240430.cms
Jet Airways, once the country's largest private airline, collapsed under a pile of dues worth
₹36,000 crore and was grounded in April 2019 8. Kingfisher Airlines controlled by liquor
baron Vijay Mallya shuttered in 2012 after accruing ₹7,000 crore in losses.
Major Airline Failures in India
Kingfisher Airlines: The Rise and Fall
Kingfisher Airlines, launched in 2005 by businessman Vijay Mallya, represented a new era
in Indian aviation with its emphasis on luxury and premium services. It quickly gained
popularity and market share, but its downfall was equally swift and dramatic. The airline's
strategy of aggressive expansion was largely funded by substantial debt. By 2008, Kingfisher
started showing signs of financial stress. It reported a loss of INR 1,602 crores in the 2008-
2009 financial year, and its debt had risen to approximately INR 7,000 crores by 2010 9
("Kingfisher Airlines: A Timeline of the Carrier's Struggles," India Today 2009).
Compounding its woes were the global economic downturn and rising fuel prices, which
severely affected the aviation industry. The situation worsened when the Directorate General
of Civil Aviation (DGCA) suspended its flying license in 2012, citing safety concerns and the
airline's failure to provide a viable financial plan for its operations 10 ("DGCA suspends
Kingfisher's licence," Business today , 2012).
The eventual collapse of Kingfisher Airlines in 2012 had far-reaching effects on the Indian
aviation sector and the economy. It led to significant job losses, affected numerous
stakeholders including lenders and suppliers, and left thousands of passengers stranded.
Jet Airways
Jet Airways, founded by Naresh Goyal, quickly became one of the most prominent airlines
in India after its establishment in 1993. It enjoyed a significant market share and was known
for its quality service. However, the airline started experiencing financial difficulties in the
2010s. By 2019, Jet Airways had accumulated debt of over INR 8,000 crores. The airline
struggled with high operational costs, including fuel prices and airport charges, and faced stiff
competition from low-cost carriers11 ("Jet Airways Crisis," Business Standard, 2019).
The final blow came when lenders refused to extend further credit, leading to a severe cash
crunch. This resulted in the airline suspending its operations in April 2019, leaving thousands
of employees jobless and disrupting India's aviation network 12 ("Jet Airways temporarily
suspends all flights," BBC News, 2019).
Air India
Air India: Struggling National Carrier

7
https://economictimes.indiatimes.com/industry/transportation/airlines-/-aviation/what-sent-air-india-crashing/
articleshow/4782707.cms?from=mdr
8
Bhawsar, P. (2022). Revival of jet airways – will it emerge as a phoenix? Emerald Emerging Markets Case
Studies.
9
Kingfisher reports loss of Rs 1602cr - India Today
10
<b>DGCA suspends Kingfisher's licence</b> - BusinessToday
11
From being India's top airline to near bankruptcy: The Jet Airways crisis explained (thenewsminute.com)
12
India's Jet Airways suspends all operations – DW – 04/17/2019
Air India, established in 1932, has a long and storied history as India's national carrier.
However, it has been plagued by financial difficulties for many years. Despite various
restructuring efforts and government bailouts, the airline has struggled to return to
profitability.
As of March 2019, Air India had accumulated debts of over INR 58,351 crores. The airline's
struggles have been attributed to several factors, including high operational costs, inefficient
management, and competition from both domestic and international airlines13.
The Indian government has made several attempts to privatize Air India, hoping to alleviate
the financial burden on taxpayers. However, these efforts have faced challenges due to the
airline's massive debt and operational complexities 14 ("Government's Air India Sale Plans,"
Livemint, 2020).
Covid Crisis Deals A Body Blow
The pandemic's crippling impact from 2020 has sharply exacerbated the financial struggles of
Indian carriers. International and domestic air travel demand collapsed overnight as countries
sealed borders and India imposed a strict lockdown15. Airlines were left scrambling for cash
to cover fixed costs and stay afloat[25].
India's airline passenger traffic nosedived from around 140 million monthly fliers in early
2020 to almost zero in April-May during the lockdown. Full year traffic plunged from around
140 million in 2019-20 to just 60 million in 2020-21, a massive 57% contraction[26].
With planes idling on runways, revenues evaporated while fixed costs remained. Airlines
resorted to salary cuts, layoffs and leave without pay for employees. Financial losses mounted
to record levels. IndiGo incurred net losses of ₹2,884 crore and ₹1,194 crore in Q1 and Q2
of this fiscal respectively. SpiceJet posted net losses of ₹600 crore and ₹112 crore in Q1 and
Q2, respectively16.
Government Support During Pandemic

13
Total debt of Air India is Rs 58,351 crore: Civil Aviation Minister - The Economic Times (indiatimes.com)
14
Govt revamps Air India sale terms | Mint (livemint.com)
15
Sharma, D., Girija, S., & Merugu, P. (2022). Mediating Role of Perceived Health Risk on Customer
Experience and Customer Satisfaction: Evidence from the Airline Industry in India During COVID-19.
International Journal of Global Business and Competitiveness, 17, 31-45.
16
https://www.livemint.com/news/india/covid-19-had-massive-impact-on-indian-aviation-sector-in-2020-
11608984681224.html