Jet Airways in trouble: What's wrong with the Indian aviation market

The recent statement by Jet Airways, one of India's big private player in the aviation sector, that it is in a financially bad shape sent jitters across the aviation sector of the country.

The management team, including Chairman Naresh Goyal, earlier this week informed employees in face-to-face meetings in Mumbai and Delhi that the airline's financials are in a bad shape and drastic measures needed to be taken to cut costs, according to media reports. The proposed steps reportedly include pay cuts.

A few years ago, India's airline industry was flying high. A booming economy made India one of the fastest growing and most competitive aviation markets in the world. A new airline Vistara started flying in Indian skies. So what went wrong?

The biggest culprit is rising crude prices which is hovering above $70 a barrel and had even touched $80 recently. Aviation turbine fuel (ATF) costs have soared this year and on an average, fuel costs are around 40-50 per cent higher in India than in other countries.

This is because the aviation turbine fuel is taxed higher and each state further levies its own set of taxes. Taxes on ATF are as high as 35 per cent, making India one of the costliest places in the world to run a fleet of planes.

Airlines are also weighed down by overcapacity. India's low-cost airline IndiGo alone has an order book of 400 planes which forces it to go for for frequent low fare deals.

All this has changed the Indian aviation sector completely. Vistara has adopted business models of low-cost carriers like IndiGo and SpiceJet, cutting down fare and selling food and beverage items separately. Reports say that national carrier Air India, already facing a huge debt, has now stopped offering food for journies which are less than an hour.

Meanwhile, Jet Airways has, for now, described reports that the airline cannot fly beyond 60 days as "incorrect and malicious" as well as denied any talks of a stake sale.

In a filing to the BSE on Friday, the airline said it is implementing several measures to reduce cost as well as realise higher revenues, for desired business efficiencies.

Jet Airways, which completed 25 years of operations earlier this year, had 16,558 permanent employees as on March 31, 2018. Besides, there were a total of 6,306 temporary/casual employees, as per the airline's annual report for 2017-18.