By Valentina Pasquali
It’s been rough going for India’s airline industry recently.
Photo Credit: CHRISTOPHER PARYPA / SHUTTERSTOCK.COM
High fuel prices, the global economic downturn and cutthroat competition for the domestic market have burdened carriers like flagship Air India and privately-owned Kingfisher and Jet Airways with huge amounts of debt (an estimated industry total of $20 billion for the year ending in March), even in the face of ever-growing passenger traffic. Crippling fare wars have made it impossible to translate growth into profits. In an effort to prop up the aviation sector, the Indian government is giving the green light to foreign airlines interested in purchasing a stake of up to 49% in domestic carriers.
“This is a significant decision and can play a crucial role in improving the aviation landscape in India,” says Amber Dubey, director of aviation for KPMG India. “Apart from the much-needed fund infusion, it would also provide access to global routes, managerial expertise and synergy benefits.”
Until now, India had allowed FDI in its aviation sector by non-airline entities only. “Foreign airlines will be interested in principle because of the size of the market that they would be accessing,” says Paul Sheridan, head of consultancy Asia at Ascend Worldwide.
India’s airline industry is growing at between 15% and 20% a year. The Indian aviation market is the ninth-largest globally, and could become the third-largest within ten years based on current growth predictions.
Aviation minister Ajit Singh recently announced a decision (pending cabinet approval) to allow carriers to import fuel directly, bypassing government-controlled oil companies and the taxes that come with them, which make jet fuel here much more expensive than the global average.
At the time of writing, the FDI proposal is also awaiting cabinet approval. It is thought that cash-rich airlines from Southeast Asia, the Middle East and Europe, whose markets have been battling stagnation or low growth, may be tempted.