With a potential air market of hundreds of millions of people, airlines ought to be hammering on India’s door—yet global airline executives say it would be madness to invest in a domestic carrier there, even if they were allowed to.
Although India’s economy is not the investor darling it was some years ago, the 1.2 billion population includes a sizeable middle class with increasing disposable income and the desire to go places. It’s a sprawling nation, trains are packed and their safety record is poor, so the potential for air travel is huge.
But there was little enthusiasm for India at a major airlines summit in Beijing this week.
“Anybody who is looking at India now is going to say it’s going to be an extremely difficult proposition. There is a reward, access to a vast market, but the execution of that is the question,” Tim Clark, president of Dubai’s Emirates Airlines said.
“You cannot afford to let civil aviation be a lame duck, not in something the size of India. You will have to find a way to make it work.”
A notable absentee at the International Air Transport Association (IATA) meeting was larger than life tycoon Vijay Mallya, whose Kingfisher Airlines is ensnared in dramatic losses and has been suspended from the group’s international settlements systems.
Other Indian airlines like Jet Airways and Spicejet are also in the red.
Foreign airlines are not allowed to buy stake in an Indian airline but the government has been sitting for years on a proposal to allow them to take a maximum 49 percent stake. The move could be passed by Parliament later this year.
The big issues are the high cost of jet fuel and airport charges, which are the highest in the world. Then there is the lack of political will to push through economic reform, alongside strangling red tape and a lumbering bureaucracy.
On top of all that is state-run Air India. The carrier is hard hit by a pilots strike but is in line for a Rs 6500 crore taxpayer bailout, and recently slashed fares.
“You have got to address that big white elephant Air India,” said Azran Osman, the chief executive of Malaysian low-cost carrier Air Asia, which suspended its India operations recently.
“If it continues to behave the way it is, you can make it 100 percent foreign ownership, and no one’s going to be attracted.”
Willie Walsh, chief executive of IAG , the owner of British Airways and Iberia, said he does not see reforms on foreign ownership taking place in India.
“But even if they do, so long as you have a state that continues to provide funds to an airline that is inefficient and is dragging down the rest of the industry I think it would be madness to invest.”