India’s largest private airline declared impressive profits of ₹1894 crore for the fourth quarter of FY 2024 and for the first quarter of the present financial year, busting two myths that surround the airline business in India while establishing a couple of maxims.
Myth One : Airlines are a loss making business in India
ModiLuft, Damania, East West, MDLR, Paramount, Kingfisher, Sahara, Jet Airways, Go First — by no means is this a comprehensive list — are among the airlines that have run into financial trouble ever since India permitted private airlines to operate.
It is widely believed that running an airline is a bad business, not one to deliver strong returns on investment. This is widely believed globally as well, with many quoting Richard Branson’s oft repeated statement : the best way of becoming a millionaire is to start off as a billionaire, and go into the airline industry
The Center for Asia Pacific Aviation (CAPA), a consultancy operating in India, has in its reports over the past 15 years been consistently reporting every year’s losses and the picture they have recorded over the years is that the airline business in India is mostly a loss making proposition, with red ink all over the books.
And while all of the above is true, the quarter after quarter of profits by the market leader IndiGo have put paid to this constant refrain one hears in India’s aviation circles : that the airline business is mostly loss making.
A detailed analysis of IndiGo’s performance will debunk this myth. The airline has made profits for much of its 17-year existence ( albeit, very small ones in the initial years). The airline launched flights in August 2006 and as is to be expected made losses in that and subsequent years of flying. In 2009-10, the airline earned a profit of around ₹80 crore and all the way from then to 2019-2020, the airline was profitable. The large losses during and after the pandemic wiped out a large portion of the accumulated profits. In FY 2020-21, the airline recorded a loss of ₹5500 crore followed by a further loss of ₹5800-odd crore in FY 2021-22.
Things began to look up in 2022 and the year ended with a small loss of ₹300 crore for the carrier but by March 2023, air travel was back with a bang . India’s largest private airline by market share made bumper profits amounting to ₹8100 crore for the year ended March 2024. The present financial year too is expected to be handsomely profitable.
Against IndiGo’s bumper profits, the combined losses of the remaining airlines — Air India, Vistara, AirAsia India, Air India Express, Akasa, SpiceJet et al — are in excess of ₹11,000 crore (US$ 1.4 billion by one estimate). Naturally, this leads most to conclude that this is a bad business per se but clearly the market leader is defying this maxim.
Some analysts disagree, as does this writer, who has tracked the industry for over 25 years: there is nothing wrong with the airline business per se, barring badly run companies and poor management and execution. Although the market leader has its own set of present problems presently, the fact that it is aggressively profitable speaks volumes for the airline business in India. As experts and analysts of the sector argue, many of the players are unable to make profits for reasons that go beyond the general market conditions with poor management being the biggest culprit.
Myth Two : The government is not doing its bit to help Indian airlines thrive
This also debunks this myth that has been built over the years by a struggling sector. No matter which aviation forum, conference, discussion or meeting one attends or reads about, there is a constant refrain or rather complaint that one hears from the Indian carriers : the government does not provide a level playing field and this is the primary reason why airlines in India have either shut down or have been making losses consistently.
The performance of at least two airlines in India — the late Jet Airways and IndiGo — proves this is a fallacy.
For a long time and well before the Ukraine war wreaked havoc on oil prices, the industry has been asking that the government bring aviation turbine fuel (ATF) under GST. The sector has been seeking parity for the fuel with petrol and diesel, so that such that the tax rate on ATF is fixed and not ad valorem as at present. Even though international flights are exempt from excise and VAT, they argue that the current regime makes them uncompetitive vis a vis the global carriers as they typically make losses at home.
But former and present government and ministry of civil aviation officials say that this is only a partial truth. One of the reasons why the government remains quite unmoved by the pleas of the sector is that they are not convinced that the industry is as “loss making or beleaguered” as it claims. These officials believe that most of the airlines that have gone bust in the past have done so more because of mismanagement by the founders/promoters/management, mal-intent or even a faulty model, rather than a hostile operating environment . They point to IndiGo’s success to buttress their point. Jet operated in virtually a no competition era so taking its example might not be ideal but IndiGo has amply demonstrated how an airline can make money and build a strong business even when there are reasonably strong competitors.
A senior MOCA official who asked not to be named points to three or four facts observed by them over the years. He argues that in good times, airlines can and do make good money and in a fairly debt-free and easy manner. For one, through sale and lease back, airlines that go in for large aircraft orders and straight away book a large profit as there is almost a discrepancy of US $ 5-8 million per aircraft between the price at which the airline buys the plane from the manufacturer and at which it sells to and leases back the asset from the leasing company. If the airline chooses to bring that money back into the company’s books, it has a good buffer to begin with as IndiGo did with its very first 100 aircraft order at the time of launch. This is what many argue gave the airline a headstart over others to begin with.
Another reason why government officials say they are not convinced about the sorry plight of airlines is because unlike most other businesses airlines do not need working capital loans as once they open flights for bookings, fares are collected in advance. Therefore, revenues flow in prior to the service delivery. This is a big advantage which few other businesses offer. Further, debt is usually not a concern for most airlines as aircraft financing is also well established and does not reflect on the airline’s liabilities as such. Unlike debt of say infrastructure companies and other similar businesses, there is no real gestation period for the asset (the aircraft) to begin to offer returns. The moment the aircraft begins to fly, it delivers returns.
Three, most airlines — both in India and globally — earn revenues through ancillary businesses and this can be a significant portion of their total revenues. In other words, as has been demonstrated by airlines such as IndiGo in the past, the business can be profitable and quite remunerative even when the macro environment is not wholly favourable. It is argued that even if the airline loses some money through its core operation of flying, it can in part be made up through other avenues.
The broader question the authorities ask is this : if the airline business is consistently loss making, why would many of the players continue in it since in most cases the sector has seen many pretty shrewd businessmen (the Wadias for instance)? Moreover, why would new entrants like Akasa and others continue to come in and start operations? After the initial losses of starting up are recovered, the entrants clearly expect to chart out a profitable course.
The officials argue that to make a business successful, the founders have to have the right intentions and not look to make quick money or enrich themselves, as has sometimes been the case with some of the airlines that have shut shop.
