Will Foreign Airlines be lured to Invest in Domestic carriers?
The ailing Indian aviation sector could be in for a booster dose if the reports of Indian Cabinet proposing to ease FDI rule, allowing foreign airlines to invest in domestic carriers, are anything to go by. A minimum of 24% FDI provisioning for opening up of India skies to foreign airline companies is being mooted by Civil Aviation Ministry.
Currently, India allows 49% FDI in airline companies; but foreign airline companies are not allowed to indulge in any such investment scheme directly or indirectly. However, if the said proposal goes through, the new policy would fly in with more strategic funds for the cash-strapped airlines industry.
However, a billion-dollar question over here is NOT whether the FDI norms be relaxed or not; but will the foreign airlines be lured enough to invest in domestic carriers, if given an opportunity.
The lure of the Indian aviation sector can be estimated from the fact that the Civil Aviation Minsiter, Mr Vayalar Ravi, has pegged the nation to hit a total traffic of 30 crore passengers by 2020. Thus, India is poised to be among the top five aviation nations in the world over the next decade.
At the same time, relaxation of FDI rules in the aviation sector would also raise the fears of tighter competition amongst the domestic carriers supported by larger sharks from across the globe, within the Indian skies.
In any case, severe clouds of doubt still surrounds the dilemma as to how productive would the opening up of India skies to foreign airline companies be; given that the sector prospects are clogged with intense competition, high aviation turbine fuel (ATF) prices, and inefficient airport infrastructure support.
Excessive airline capacity, lower average realization and downturn in the global economy have further added to the woes of the airline industry. Moreover, after witnessing the dire situation of the loss making carrier Air India, a striking aspect that comes to fore is the relatively high-cost environment, including regulatory and tax structure impacting the fuel costs, that Indian airlines operate in.
Further, most of the Indian carriers that have accumulated billions of dollars in losses and debts, have so far managed to stay afloat mainly on account of deep-pocket parental backing or governmental support to tide away the crisis temporarily.
Though, low-cost airline is the most preferred service by business and working class people today, not many domestic carriers have been able to cut the ice in this niche category business. This can be determined from the fact that except for IndiGo and Spicejet, no other airline company has been able to sustain in green territory.
India’s largest low fare carrier, IndiGo, posted a profit of Rs.650 crore during last financial year backed by its lower non-fuel and debt servicing costs. Amongst other low-fare carriers, Spicejet made a profit of Rs.101 crore during the year. On the other hand, private carriers such as Jet Airways and Kingfisher Airlines suffered losses of Rs.86 crore and Rs.1027 crore respectively.