The Indian government is planning a rescue package for the aviation sector as the losses pile up

• The country’s airlines are set to lose nearly $2 billion in 2018-19, according to CAPA, a consultancy, owing to rising costs and low fares.
  
• The Ministry of Civil Aviation is working on a relief package to ease the cost pressures on the country’s struggling carriers. This could involve a reduction in fuel taxes by bringing aviation turbine fuel under the GST regime.
  
• The government also wants to build 100 new airports within the next 15 years.
  

A relief package has been a long time coming for the world’s third largest aviation market. While India’s airlines have expanded their business rapidly over the past decade, as indicated by surging passenger traffic, much of this has come with high capital costs and minimal profits.

And now? Airlines are recovering from one of the worst years so far in recent memory. The rupee’s depreciation is expected to raise costs for airlines, most of which are denominated in dollars like leasing expenses and ground handling charges overseas, by a third. Fuel costs, which comprise 40% of overall costs, have risen dramatically amid a rebound in oil markets and heavy domestic duties. Fares have stayed low in the face of a intense competition in order to keep passenger volumes robust.

The losses are mounting. For the first quarter of the current financial year, Jet Airways and Spicejet and reported net losses of ₹13.2 billion and ₹380 million, respectively, while Indigo, which has usually been the country’s most profitable airline, saw a 97% drop in its net profit to ₹280 million. The country’s airlines are set to lose nearly $2 billion in 2018-19, according to CAPA, a consultancy, and will need a $3 billion capital injection to clean up their balance sheets.

A lifeline from the government

The government has taken notice of the problems faced by the sector. According to the civil aviation secretary, RN Choubey, the Ministry of Aviation is working on a rescue programme for the country’s struggling carriers. While the details of the package have not been announced, the aviation ministry has been working with the finance ministry to ease some of the cost pressures on airlines.

The package will likely focus on two things- high fuel prices and the problem of the rising rupee, especially in relation to leasing costs. For the former, the aviation ministry plans to bring aviation turbine fuel (ATF) under the GST regime as opposed to the current system, whereby states impose different taxes on top of a national excise duty of 14%.

No discussion of the industry’s problems is complete without mentioning the travails of Air India. The loss-making, indebted state carrier is also slated to receive a minor reprieve from the government in order to stay afloat in the short-term. The Indian government has extended a credit facility of ₹21 billion to Air India for working capital purposes, following an equity infusion of ₹8.6 billion.

The government is also planning to invest heavily in airports infrastructure. Earlier this week, the Minister of Aviation, Suresh Prabhu, announced that the government would finance the construction of 100 airports in the country over the next decade and a half, to add to India’s 130 existing airports. The programme is expected to cost around $60 billion.