On September 28, 2006, the Minister of State for Civil Aviation, Praful Patel, held a meeting with the various carriers to discuss the growing losses in the Indian aviation sector. The minister said that there would be closer scrutiny of new applications before issuing licenses to new carriers.

In an effort to increase market share, the carriers had resorted to offering tickets at highly discounted prices. While the passengers benefited, the industry as a whole was faced with mounting losses. In August 2006, SpiceJet had reported a net loss of Rs. 414.2 million for the first year of operations. In September 2006, Deccan Aviation, that operates Air Deccan, India’s largest LCC , reported a loss of Rs 3.4 billion for the 15 month period ended June 30. Jet Airways, a full service carrier, had also reported a net loss of Rs one billion for the half year ended September 30 against a net profit of Rs 1.6 billion for the same period the previous year.

Analysts said that a combination of factors like high ATF prices, rising labor costs, rapid fleet expansion, and intense price competition among the players was responsible for the losses in this sector. The problem was also compounded by new players entering the industry even before the existing players could stabilize their operations. It was estimated that the industry as a whole could face losses of upto Rs. 16 billion in 2006-07.

Given the problems facing the sector, on October 16, 2006, the carriers decided to set up the Federation of Indian Airlines, that would take up common issues with the government and sort out problems among members. Though there was consensus on improving aviation infrastructure and reducing taxes on ATF, the LCCs were opposed to full service carrier proposals for a check on fare reductions. How the turbulence in the sector will be dealt with remains to be seen.

—Source: Debaratim Purkayastha, ICFAI Center for Management Research, Hyderabad, India. www.icmr.icfai.org.

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