If two’s company, and three’s a crowd—six, seven, and eight are a veritable stampede. Especially in Indian aviation, which has witnessed many rough jostles and shakeouts. The sector, true to form, has made millionaires out of billionaires like Vijay Mallya and Naresh Goyal over the years. Yet, it continues to lure players.

Last week, the Tata Group finally won finally won The Hindu After 68 years, Tatas win back Air India with ₹18,000-crore bid Read more the bid for state-owned carrier Air India. If the airline’s operations are eventually integrated with either of the existing Tata Group airlines—Vistara or AirAsia India—or if all three airlines merge, as is also being speculated, the number of carriers in the country could come down to four or five.

But that’s not counting the nearly half a dozen small and regional players such as TruJet and Star Air. Then, there are the two ambitious new players waiting in the wings—Jet Airways, reborn after the bankruptcy process, and Akasa, promoted by deep-pocketed investor Rakesh Jhunjhunwala. Whichever way you dice it, Indian skies will see their fair share of big birds over the next year. The tough prevailing market conditions, though, could still clip some wings.

“Three carriers are sufficient for the Indian domestic market. More than that, it becomes overcrowded and leads to unsustainable competition,” says an aviation sector analyst who does not want to be named. There is precedent for this—the fall of Mallya’s Kingfisher Airlines and Goyal’s Jet Airways was the outcome of intense competition in a multi-player market, among other factors. Jagannarayan Padmanabhan, director at credit ratings firm Crisil, says that competition and cost pressures could result in “consolidation or shutdowns”.

Punched in the gut twice over by the pandemic, Indian carriers are already bathed in red. Aviation consultancy CAPA expects Indian airlines to lose $4.1 billion in the year ending March 2022, up from about $3.6 billion the previous year. Debt levels have also shot up sharply, and the net worth of most airlines has been eroded. No one escaped the carnage.

The nascent recovery now underway in domestic traffic is threatened by continued weak demand and high fuel costs. “Aviation turbine fuel (ATF) prices are rising and financing rates are up, but the cash inflows are nowhere near enough to cover input costs,” says Satyendra Pandey, managing partner at aviation services firm AT-TV. Lenders don’t want to fund weak players, he adds. It doesn’t help that international travel, an important revenue source, is still severely limited despite air bubble arrangements between India and 28 countries. It may be years before international travel recovers fully.

In an already dire environment, competition and the resultant fare wars could spell doom. This has been kept at bay by the government through fare floors fare floors Fare floors Fare floors and caps—the mandate by the government on minimum and maximum ticket prices airlines can charge from passengers.

AUTHOR

Anand Kalyanaraman

A certified Chartered Accountant, Anand chose to pack the power of numbers with words when he left a career of seven years in accounting, putting together MIS reports, and investment research to enter journalism. Before joining The Ken, Anand was Deputy Editor at The Hindu BusinessLine, a newspaper he worked at for 11 years.

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