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November 15, 2011 / oneworld82

Troubles ahead for Indian carriers

Kingfisher Airlines is a Skytrax 5-star airline. Excellent service, low fares, expanding network, high customer satisfaction. On the other hand, Air India is renowned for its old airplanes, crowded flights, and poor customer service. Yet, both airlines are closer than ever, as both companies are struggling to raise capital to finance their plans and to… stay afloat!

Both airlines suffer from an ultra-competitive domestic market that has seen the emergence of low fare carriers like IndiGo and SpiceJet storming the market. Lower fares and dense schedules allowed LFAs in India to grab a sizable share of Indian travelers, who tend to be more price sensitive than in the West even when it comes to business travels. Hence, airlines that rely on a hub-and-spoke, wider network have been greatly suffering in India – especially because their international network is not as developed as it should be (with the notable exception of Jet Airways).

Kingfisher Airlines is a clear example of how an imperfect regulatory system – plagued by high taxes and high airport fees – is affecting one of the most promising airlines in the World. To add to the despair, a protectionist Indian law forbids FDI into domestic airlines, making even harder for these battered carriers to raise much needed capital for expansion and/or restructuring. Indian millionaire Vijay Mallya – owner of KA – has propped the balance sheet of the airline with already too much money. If the company doesn’t find a viable way to become profitable, it may well go bankrupt soon. Air India and Jet Airways may follow suit. This (catastrophic) event would leave India with no major local international player – leaving the country to the dominance of foreign carriers (especially the ME ones) when it comes to international traffic. A certainly auspicious thought to which simple policy reforms could be a much-needed remedy.

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