Strike Ends, but India's Airline Woes Continue

Jet Airways' pilot strike was a boon to other carriers. Still, the Indian industry's problem is too many planes and too few passengers

By Mehul Srivastava

Air travelers in India let out a collective sigh of relief on Sept. 13, when Jet Airways, the country's second-largest private airline, negotiated an end to a five-day strike by nearly half its pilots. But for the rest of India's airline industry, that just might be terrible news. In an industry plagued by too many planes and too few passengers, the past five days may end up being its most profitable. As soon as Jet Airways started canceling flights on Sept. 1, competitors moved in hungrily on its 25% market share, doubling and even quadrupling ticket prices for last-minute buyers. "Break even? We raked it in," says the chief operating officer of a competing airline, who asked not to be named because India's airline regulator had frowned on the practice. "All the industry needs is for one major airline to go out of business, and the rest of us will be fine."

That's a dire—albeit accurate—prognosis for an industry that was once the fastest-growing in the world, capturing the public imagination as passenger traffic doubled every two years, new airports opened across the country, and airlines wooed economy passengers with tickets at throwaway prices. They wowed business-class travelers with private helicopter rides from airports to city centers, lavish meals, and fancy lounges. "These airlines, they treat you like a king," says Jagdish Chattra, a 52-year-old U.S.-based businessman who took an Aug. 27 business-class flight on Kingfisher Airlines, India's largest private carrier. His lunch included salmon, spinach-and-brie soup, French pastries, and fresh-baked bread for an $80 economy-class ticket that he spent a further $50 to upgrade. A valet carried his bag to a plush lounge, and a flight attendant polished his eyeglasses before landing.

Carriers Overexpanded in Boom Times

All the luxury did little to cover the red ink every time earnings season came along. India's airlines, with a total fleet size smaller than that of Singapore Airlines or American Airlines (AMR), lost $2 billion in the fiscal year ended March 2009, a fifth of the global total for the airline industry. Jet Airways, which was once occasionally profitable, had operating losses of $268 million, and Air India, the aging and stodgy state-run carrier, flew its nearly 100-plus planes half-empty, losing more than $1 billion. "It's definitely going to be a long time before Indian carriers reach the kind of efficiencies needed for long-term stability," says Kapil Kaul, the India CEO of the Center for Asia Pacific Aviation (CAPA).

The biggest problem is overcapacity. India's airlines simply bought far too many planes, far too early. As the Indian economy scorched between 2003 and 2007, carriers added planes and destinations in a frantic race for the largest market share, losses notwithstanding, in the hope that as passengers got hooked on air travel they would eventually pay enough for tickets to produce profits. Gurgaon-based IndiGo placed a record-breaking order for 100 Airbus A320s in 2005, agreeing to a total list price of $6 billion. Bangalore-based Kingfisher placed orders for five of Airbus' double-decker A380s, at $350 million each.

The expected surge in profits, however, never happened. Indian passengers turned out to be addicted not to air travel, but to cheap air travel.

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