Indian Aviation Sector: On Borrowed Wings
3/7/2013 9:00 PM Thursday
The Indian airspace is buzzing with a fresh spell of activity, with foreign players scanning the horizon for opportunities to grow their wingspan. While this indicates that foreign players still foresee value in the Indian aviation space, will it be correct to allow foreign players to capture the Indian skies? Prasanna Bidkar takes stock.
The aviation space in India has suddenly turned quite vibrant, with fresh news arriving from all quarters. Whether it is the special price cuts announced by leading aviation companies or the announcement of Kingfisher Airlines paying salaries to its employees, or for that matter approaching the aviation regulator seeking licence renewal despite being in dire straits, the developments have surprised one and all on the street. The surprise is quite natural, with aviation companies doubled over under the pressure of high debt burdens and mounting losses, and investors shying away from the aviation pack. We at DSIJ had also categorically asked our readers to stay away from the sector in a special report ‘Airline Industry: A Hard Landing After A Dream Run’ carried in Issue # 4 (dated February 10, 2013).
What has suddenly changed for the sector to be in the limelight again? As they say, change is the only constant in life and the aviation sector is no exception to it. Apart from the factors already mentioned, a lot more has happened in the sector, putting it under the spotlight again. The most significant is the world’s leading low cost carrier, Malaysia-based AirAsia, seeking permission to enter India’s domestic airspace. What makes this news more noteworthy is AirAsia seeking an alliance with the trusted and efficient Tata Group.
Here is a detailed analysis which seeks to answer that one vital question – will the aviation sector succeed in its attempt to get new wings?
Special Offers – Will They Help?
It is a known fact that all the Indian aviation players are facing a financial crunch and are always looking out for new avenues to generate cash flows. The increased FDI limit provided them a good opportunity to raise funds by diluting or selling stake to foreign airlines. However, the fact remains that not a single deal on this front has happened so far. Though Jet Airways and Etihad were reportedly close to a deal, that too seems to have fizzled out.
So, aviation players put in place a different kind of a strategy to get over the cash crunch – offering specially discounted fares. SpiceJet kicked off the trend by offering forward tickets at special rates. This was followed by other players like Jet Airways, Indigo and even the state-run Air India. While SpiceJet managed to garner around Rs 300-350 crore, Jet Airways targeted to generate Rs 600-650 crore. This, for obvious reasons, seems to be a better way of generating cash flows rather than sinking in debt. Subhash Goyal, Chairman, STIC Travel Group concurs with our view. He says, “According to me, these fare cuts by airlines are primarily tactical measures to boost business and improve their cash flows. It seems to be a better option rather than borrowing more funds from banks”.
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