Turbulence in India

The Indian air industry has kept me entertained for the last few years. There has been the saga of the long slow death of Kingfisher which finally vanished last year, the incomprehensible losses at government owned Air India.

Profitability for the rest of the sector has continued to elude. Air India and private competitors Jet Airways and Spicejet all announced losses for the fourth quarter of 2013.

Air India’s loss for 2013 exceeded the Indian government’s entire higher education budget. It’s outstanding debt stood at 26 billion rupees. The airline’s employees have been facing a 25 per cent cut in salaries for the last 18 months. According to the aviation ministry. “Flying allowance to pilots is being released regularly on a monthly basis. However, there have been some delays in payment due to tight cash liquidity position,”. Pilots are saying their allowances are now two months behind. The airline had been bailed out several times by the Indian government and is back for more cash.

Jet Airways this week announced its fourth straight quarterly loss this week. Its recent foray into price discounting is likely to cause a repeat of the loss in the next quarter.Jet faces major challenges over the next year.

Jet has no long term CEO after Gary Toomey resigned six months in the job. Indian sources suggest Toomey found himself caught in a power struggle between Jet’s founder and its new sharehlder Etihad, over the future direction of the carrier. There are suggestions that another the next chief will be Cramer Ball from another Ethiad company: Air Seychelles

Competition is heating up in India: Tata SIA, a venture between the country’s richest company and Singapore International Airlines has been announced. Spicejet, India’s number four carrier have started an arrangement with Tiger Airways (owned by Singapore Airlines).

At the same time Air Asia are gearing up to operate across India. The Federation of Indian Airlines (FIA), the airline lobby group, has written to Director General of Civil Aviation that granting AirAsia (India) a permit would drive the industry into further losses.

The Indian Competition Appellate Tribunal (Compat) is hearing a case against the Jet-Etihad deal. I think the future of Jet is reliant on Etihad so to have this connection struck down could impact negatively.

The thing in favour of these airlines is that India’s middle class continues to grow in number and wealth. Profitability exists in the future if they can make it through the medium term.

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Pos

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