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Indian Airline Industry Scrutinized After Mass Flight Cancellation

  • Anjana Pasricha

A car moves past Kingfisher Airlines aircraft parked at the airport in New Delhi February 21, 2012.

A car moves past Kingfisher Airlines aircraft parked at the airport in New Delhi February 21, 2012.

In India, mass flight cancellations by one of the country’s biggest airlines have turned the spotlight on the country’s struggling aviation sector. The government says it is trying to address the problems faced by an industry crucial to the growth of India's economy.

Hundreds of passengers were stranded, across the country, as Kingfisher Airlines announced more flight cancellations on Tuesday. The airline is operating less than half of its 64 planes and has scrapped nearly 100 flights on some of the busiest routes in recent days.

Kingfisher has been cash-strapped for several months. But the company's problems deepened when tax authorities froze its bank accounts after it failed to pay taxes. Many pilots have quit as the airline battles to pay creditors and staff.

Until last year, Kingfisher was counted as India’s premier airline, but it is now the worst hit among domestic airlines that are struggling with debts and losses.

Regulators Tuesday ordered Kingfisher to prove its operational viability and said its safety standards would be scrutinized.

Aviation Minister Ajit Singh has ruled out a bailout for the company. But he says the government is concerned about the health of a sector that is crucial for the country’s developing economy.

“Any industry, if one big company goes down, it does affect people," Singh admitted. "Since demand is more and seats are less, we have to monitor. Safety issues are there and safety is impacted by the financial situation also.”

Minister Singh expressed hope that a recent proposal to allow foreign investors to buy stakes of up to 49 percent in domestic airlines will give cash-strapped Indian carriers access to more funds. The policy has been approved, but has not yet been formally implemented.

However, aviation analysts say the government also needs to address other problems faced by the industry. High taxes on aviation fuel in India make it expensive. Several states also levy high local taxes. As a result, fuel accounts for 40 percent of the operating cost in India, as opposed to 20 percent in most other countries. A fierce price war among carriers has resulted in airlines selling tickets at discounted prices.

Sanat Kaul, chairman of the India chapter of the International Foundation for Aviation and Development, says foreign investors are likely to run into the same problem as the domestic industry.

“I don’t see how foreign investment by airlines is going to improve the overall scenario," Kaul said, "unless the government changes certain policy parameters which are leading to this kind of loss…taxation, import of fuel.”

India’s aviation sector expanded at a furious pace in the past decade as domestic traffic grew. But it could post losses of $3 billion in the financial year that will end in March.