For four decades after eight independent domestic airlines - Deccan Airways, Airways India, Bharat Airways, Himalayan Aviation, Kalinga Air Lines, Indian National Airways, Air India (formerly Tata Airlines), and Air Services of India - were merged to create state-owned Indian Airlines in 1953, India's aviation sector remained a national monopoly. Policy changes came in the 1990s - and liberalisation and economic reforms gave the private aviation industry new wings of hope. Several of the private airlines that took off during that decade were to hit air pockets soon, however - and in the years that followed, the sector saw the entry of quite a few new players even as the businesses of others collapsed or were taken over. The suspension of operations at Jet Airways - at one time India's largest private airline - announced Wednesday, follows the troubles at Kingfisher, Air Deccan, and Sahara.
Founder promoter Naresh Goyal's Jet Airways was one of the first private airlines in newly liberalised India. In 1993, a year after its launch, Jet got an air-taxi operator's permit, which meant it could fly, but without a schedule. A flight schedule allows a carrier to estimate costs and revenues for six months, the period of a single schedule in India. Less than two years later, Jet got permission to fly as a scheduled airline after the government abolished The Air Corporation Act, 1953, which gave the state-owned carriers the monopoly to operate as scheduled airlines.
Besides repealing The Air Corporation Act, the government announced an Open Skies policy in 1992, liberalising rules and regulations to open up the commercial aviation market. This led to the birth, over the next decade or so, of private sector players including ModiLuft, Damania Airways, Air Sahara, and East-West Airlines. Most of these new players, however, folded up soon or were merged - Jet Airways in contrast, stood out as an efficient private sector operator, gaining market share with each passing year.
ModiLuft and East-West ceased operations in 1996. Air Sahara, which started operations in 1993 as Sahara Airlines, was acquired by Jet in 2007 - a business move that many analysts argue marked the beginning of the company's troubles.
ModiLuft, which had an excellent record for three years until it shut down in 1996, was later acquired by Ajay Singh, who launched it as SpiceJet in 2005 along with NRI businessman Bhulo Kansagra. As SpiceJet faced difficulties, Kansagra sold his stake to US distress investor Wilbur Ross in 2008, who sold it to Sun Group's Kalanithi Maran a couple of years later. The airline was teetering on the verge of closure when it was again acquired by Ajay Singh in 2015, who turned it profitable.
Boom and bust
The real expansion of the private airlines, and the number of domestic flyers in India, started in the 2000s. In 2003, Captain G R Gopinath started the country's first low-cost carrier Air Deccan, which was followed by the launch of SpiceJet, IndiGo and GoAir. All these carriers followed the model of no-frills, cheaper tickets, and higher passenger load factors.
The LCC (low-cost carrier) model revolutionised the Indian aviation sector, pushing the country's annual passenger growth rate to double digits. Alongside the LCCs, Kingfisher Airlines started operations in 2005, pitching itself in the middle of a no-frills and a full-service carrier. These new airlines posed a formidable challenge to Jet Airways, which had so far operated largely in a duopoly with state-owned carriers Air India and Indian Airlines (which were merged in 2011).
But the situation changed soon.
Air Deccan faced extreme financial difficulties and was bought by Kingfisher in 2007. However, Kingfisher itself went belly-up in 2012, while SpiceJet faced intermittent headwinds. Jet, which had a 44% share of the domestic passenger market in 2003-04, steadily lost ground - in February this year, the deeply troubled airline had only 10% of the domestic market share, fourth behind IndiGo (43.4%), SpiceJet (13.7%) and Air India (domestic, 12.8%), according to government data. In all these years, IndiGo stood out as the only carrier that improved its market share and financial performance.
In December 2004, the government announced a major policy change, allowing Indian scheduled carriers with a minimum five years' continuous operations and a minimum of 20 aircraft (the so called 5/20 rule) to fly international routes. Jet was the key beneficiary of this policy change. In 2016, the government scrapped the 5/20 rule and replaced it with 0/20, enabling SpiceJet, IndiGo and GoAir to launch international flights in the following years.
A brutal industry
Over the last four years, India's aviation market has grown at a yearly average rate of 20%, among the fastest in the world. More and more Indians are flying; paradoxically though, nearly all the major players are in dire straits financially.
Apart from operational and managerial efficiencies, one of the key determinants of an airline's success or failure is the price of crude oil. Fuel costs account for roughly 40 per cent of a carrier's operating cost. Steep taxes on aviation turbine fuel (ATF) in India - one of the highest in the world - make Indian carriers less competitive against global players.
The launch of the LCCs disrupted the business model of the full-service players, eating into their market share, and creating stress in the market. The wafer-thin margins, and heavy competition and government taxes, results in airlines turning commercially unsustainable from time to time, and they require constant infusion of funds to stay afloat.