India's Airlines Face Worst Month in Labour History: Revenue Losses and Stranded Passengers

Strategic Insights -

India's airlines witnessed a tumultuous month in September, with pilots from Jet Airways and Air India going on strike, leaving thousands of passengers stranded and inflicting revenue losses of Rs100 crore on each carrier. The labour discord was a direct result of the airlines' financial struggles, which have accumulated losses of Rs15,000-16,000 crore in the last 3-4 years, according to the Centre for Asia Pacific Aviation.

Key Takeaways:

  • India's domestic airlines have accumulated losses of Rs15,000-16,000 crore in the last 3-4 years, with State-run Air India's losses alone shooting up to Rs7,200 crore in the last fiscal year.
  • The International Air Transport Association (IATA) statistics show that the losses of local carriers for 2008-09 were Rs10,000 crore ($2 billion), nearly 20% of the global airline industry loss estimated at $11 billion, although their share in the global aviation market was just 2%.
  • Air India's high operating costs are attributed to its inflexible business model as a government-owned firm, as well as high pilot salaries and excessive employee numbers, with one employee on average per 30-35 aircraft globally, compared to Air India's 100-120 employees per aircraft.
  • Private mainline carriers like Jet Airways and Kingfisher Airlines are trying to mitigate their losses by slashing excess capacity and rehauling their cost structures, with Jet Airways cutting 30% capacity in the last 12 months.
  • The domestic air passenger growth had touched a peak in 2006, but the situation deteriorated after the economic meltdown in late 2008, leading to a perpetual excess supply and plummeting fares.
  • Indian carriers' human resource cost, especially pilot salaries, and airport charges are 10% above the global benchmark, with the biggest financial drain being the capital cost due to high interest rates on borrowed funds.

Statistics:

  • Rs100 crore: Revenue losses per carrier due to the pilots' strike
  • Rs15,000-16,000 crore: Total accumulated losses of India's domestic airlines in the last 3-4 years
  • Rs10,000 crore: Losses of local carriers for 2008-09, according to IATA
  • $2 billion: Losses of local carriers for 2008-09 in dollar terms, according to IATA
  • Rs7,200 crore: Air India's losses in the last fiscal year
  • 100-120: Number of employees per aircraft on average for Air India
  • 30-35: Number of employees per aircraft on average globally
  • 40%: Difference in jet fuel prices in India compared to Malaysia
  • 35-40%: Proportion of an airline's operational cost attributed to fuel
  • Rs16,600 crore: Total debt of Jet Airways

Sources:

  • Centre for Asia Pacific Aviation
  • International Air Transport Association (IATA)
  • Jitendra Bhargava, executive director of Air India
  • Sachin Gupta, aviation analyst with HSBC
  • Ankur Bhatia, managing director of Amadeus India
  • Industry expert with a global airline industry body
  • Jet Airways
  • Air India
  • Kingfisher Airlines