The number of domestic air travellers has been rapidly increasing. Most recent figures show that domestic travel is inching towards 70 percent of pre-Covid levels. Packed airport terminals and rising occupancy on flights are proof of the same. Add to this the recent 72 aircraft order by the startup airline Akasa, the successful sale of the national airline Air India to the Tata group, a settlement between Boeing and SpiceJet, the possible revival of Jet Airways, buzz about additional aircraft orders by incumbents and another startup waiting in the wings. Together these are adding up to much enthusiasm. Yet, behind the narrative also lies the fact that yields are being held up by government-mandated price-floors, international flying continues to be depressed, airlines are carrying excess fleet and fixed costs, currency fluctuations continue, fuel prices have doubled in the past year and airport charges continue to rise unabated. Overall, Indian aviation is not quite out of the woods yet. There are still significant headwinds ahead.
Cash-flows are still propped up by price-floors
As of this writing, the government-mandated price-floors continue. Effectively flyers are denied access to discounted fares within a 15-day window as a minimum price band has been set. When removed it is assumed that airlines will rush to discount. Given liquidity profiles, this means that one or two airlines will inevitably fly dangerously close to closure, keeping the price-floors in place is just not a long-term solution. Faulty fundamentals that should have been addressed remain untouched.
Even prior to the pandemic, airlines were flying without fundamentals in place. And this was glossed over only because of the promise of significant growth for many years to come. The pandemic laid bare these fault-lines and this was bandaged by a customer-funded bailout. In that, a minimum price band was set during a time where there was reduced capacity on rail and challenges with road travel….