Jet collapse not so rare, market will keep maturing: Analysts
Jet’s collapse is attributed to high costs in the Indian market and the airline’s inability “to change with the times”, say analysts.
The Jet Airways crisis can be attributed to the advent of “efficiently run” low-cost carriers (LCCs) and is not unique because many legacy carriers in other countries have shut down, analysts told ET during the IATA annual general meeting in Seoul last week.
They said the Indian market is difficult because of high fuel costs, poor infrastructure, complex regulations and low yields, but is set to grow over the next five years, allowing both LCCs and full-service carriers to make money.
Jet’s collapse is attributed to high costs in the Indian market and the airline’s inability “to change with the times” to compete with LCCs in India’s regulatory environment.
“The Indian market is tough due to macroeconomic conditions, the rupee, oil prices and more generally, costs. These are putting pressure on the profitability of Indian members and it is a market where the competition is very, very tough,” said Alexandre de Juniac, DG and chief executive of International Air Transport Association (IATA). “What we see in India is that full-service airlines are facing some difficulties. Jet Airways was one of them. Low-cost carriers are doing a little better.”
“Old carriers like Air India and Jet Airways had the field to themselves and that made them fairly complacent,” said Peter Harbison, executive chairman of CAPA, a Sydney-based aviation consultancy firm. “Once you had too much capacity coming in with very low fares and not very good management in most of the cases, it was bound to make the industry unsustainable.”
“The biggest thing that has hindered India’s aviation has been the enormously badly designed regulatory policy. The only thing it has achieved is effectively destroy operations in India. It has helped foreign carriers no end,” Harbison added.
However, others said the problem is one of high costs and low yields. “The Indian market has two sides – one is from the policy side that includes infrastructure issues and high tax on fuel and the other is the revenue part. The airlines do not have much of a room to charge as India is a market with one of the lowest yields and if airlines start charging more for flights, people move to other modes of transport like railways and roads,” said a CEO of an airline alliance who did not want to be identified.
Some experts are quite optimistic about India and said the market would reform itself and become much more sophisticated after the Jet Airways failure and, hopefully, the successful divestment of state owned Air India. “India is a market of opportunity and growth” said Brian Pearce, chief economist at IATA.
“If the infrastructure is created, better-managed airlines are built, regulatory policy becomes much more intelligent and the economy keeps growing, we would be looking at a period of five years. The positive is that the sector is still attracting good money,” predicted Harbison of CAPA.