Aviation Sector in shambles

The debate over bailout for Kingfisher, earlier bailout of Air India from the taxpayers money and the recent strike of pilot by the government carrier are the manifestations that aviation sector of India is flying abysmally low. Its ironical that while the industry is witnessing a double digit growth rate in the passenger traffic, the Airlines companies are complaining about shrinking bottom lines. The purpose of this article is throwing some light on the issues which the sector is facing. There are a number of complex issues which are responsible for the ill health of the aviation sector. The following are the list of issues, which inter alia are considered most important in this context.

High taxes The Air Turbine Fuel (ATF) is marred by high taxes, opaque import policies and cartelization by few public sector companies. As a result the ATF is taxed absurdly high in India. This increases the operational costs and thus shrinks the bottom line. The declining value of rupee Since the ATF needs to be imported the declining value of rupee has also ballooned up the fuel cost for the airline companies. Loopholes in the Air Navigation Services Airport Authority of India (AAI) controls the Air Navigation Services in the country. The AAI has not invested off late into technology up gradation, latest equipments and training. As a result long delays are rampant before landing of aircrafts wherein they hover for long duration burning fuel. The number of landing per hour in major airports in India is far below the international standards. Irrational pricing through Computer Reservation System The Central Reservation System (CRS) based on econometric modeling has introduced an element of irrationality. This system is based on assumptions and unknown that often leads to under pricing of tickets below operation cost especially when the demand goes down. The exactly opposite happens in the case of high demand wherein the ticket prices go excessively high. Price sensitive consumers and excessive competition Although there is double digit growth in the passenger traffic in the past few years but the consumers are highly price sensitive and with the liberalization of the economy multiple players have entered into the services as a result the ticket prices have gone down vis--vis past decade.