Despite the Indian aviation sector’s history of high costs and near lack of pricing power there seems to be no dearth of aspirants. Last week, Air Asia India launched its maiden flight in India offering rock bottom fares and compelling incumbents SpiceJet and Indigo to also pare prices even though they can hardly afford to do so; for perspective, Jet Airways, SpiceJet and Air India together reported losses of more than R10,000 crore last year primarily because a weak rupee drove up fuel costs.
But it’s not just costs that are the problem; there is chronic over-supply, even after Kingfisher’s exit from the industry and it is not going away anytime soon. Research from HSBC estimates that the increase in the supply of narrow-body seats will accelerate from 8% last year to 11-15% over FY15-17. While that doesn’t seem to have discouraged Air Asia, which claims it will break even in four months, it should worry the Indian government given that Air India isn’t anywhere close to breaking even. The national carrier is understood to be targeting a 14.5% jump in revenues this year which would fetch it some R16,500 crore. But given how it hasn’t even been able to hold on to market share—its share has slipped from 20% in March 2013 to 19.1% in March 2014—the target seems a tall ask. More pertinent, even if it does manage to achieve the top line, the carrier will continue to post losses; the estimated net loss this year is R4,346 crore and while that’s smaller than the R5,000 crore reported last year, it is a fairly large hit in itself. While the carrier’s domestic load factor did go up last year to 75.8%, the load factor on international routes was lower than 75%. With a strong partner in Ethihad, Jet Airways is now better positioned to capture passenger share on international routes leaving Air India even more vulnerable. Neither the banks nor the government can afford to continue to support the airline in the absence of a viable business proposition.