India calls in airline industry chiefs to plot a full-scale revival from COVID-19

Dubai: India has pulled in aviation industry heavyweights to come up with solutions to revive an ailing airline industry, which remains hardest hit among all sectors of the country’s economy. The new committee features Rahul Bhatia of IndiGo, Jay Singh of SpiceJet, Ness Wadia of GoAir, Vistara’s Bhaskar Bhatt, and AirAsia India’s Sunil Bhaskaran.

But will they be able to come up with the goods?

"This is not the first time such committees have been formed - (this) shows intent to take on challenges that the sector is facing, several of which are well-known," said Ashwini Phadnis, a Delhi-based aviation journalist. "What needs to be remembered is that there are several areas in which the Ministry of Civil Aviation cannot do much."

Financial aid

Chances of the Indian Government announcing dedicated financial relief for the airline industry remains remote. The last union budget had limited scope for airline relief measures, and with the economy just emerging from the second wave of the COVID-19 shutdowns, saving airlines will not be an immediate priority for the government.

Plus, the government may not be in a position to provide direct financial aid to the aviation industry. In May 2020, India’s finance ministry launched the Emergency Credit Line Guarantee Scheme (ECLGS) to help the pandemic-hit economy. This scheme aimed to provide Rs3 trillion (Dh148 billion) of unsecured loans to businesses to mitigate the distress caused by the first coronavirus-induced lockdown. The programme was expanded earlier this year to also cover civil aviation.

Removing restrictions

After the pandemic, India placed limits on air fares and passenger capacity, a move that has not gone down well with airlines. Although India recently allowed airlines operating domestic routes to run at 65 per cent capacity (up from 50 per cent) – some like Indigo, the country’s largest carrier, have been pushing hard to make it a 100 per cent.

The low-cost carrier, which has a fleet of over 200 aircraft, will easily be able to swamp the market at the cost of some smaller players. Indigo’s Chief Commercial Officer William Boulter is hopeful that the airline will return to the 80 per cent capacity seen in February and March.

“We do see demand has come back - some observers think it's coming back faster than it did after the first wave. We look forward, optimistically”

Get fliers to return

Apart from the limits on flight capacity, India’s aviation regulator has also placed caps on domestic flight fares. “We've made it clear that we would like to get back to 100 per cent capacity and we would like to see the price limits removed,” said Boulter, during a virtual event. "We would obviously like to get back to the situation as it was in 2019"

Right now, however, Indigo seems to be losing some market share, at least in terms of the number of passengers carried. According to official data, Indigo had a load factor of 62.7 per cent in June, compared to 71 per cent for Spicejet and 70.9 per cent for GoAir (now called Go First).

Fuel tax change

However, there are certain problems that cannot be fixed by airline industry leaders coming together. A main sticky point is ihe taxation on Aviation Turbine Fuel (ATF), which is the largest cost component for an Indian carrier.

"The decision on getting ATF under the Goods and Services Tax (GST) regime has to be taken by the GST Council,” said Phadnis. “Five petroleum products including ATF are outside the GST structure, which allow states to levy different taxes and duties on ATF rates."

As per current legal regulations, inclusion of these products in GST will require recommendation of the GST Council. "So far, the GST Council, in which the states are also represented, has not made any recommendation for inclusion of aviation turbine fuel," said Phadnis.

"Similarly, a lot of issues with the MRO sector will have to be dealt with by the Ministry of Finance as it is responsible for fixing duties on imports of certain components."