The Cassandra Effect on India’s Aviation

Cassandra, the daughter of Priam, the King of Troy, possessed the gift of prophecy, which had transformed into a curse in Greek mythology. She advises the King against accepting the gift of the Trojan horse, which was used to hide the Greeks, but he refuses to trust her. According to legend, this is what causes Troy's demise. Today, India's airline industry is in a similar situation.

Domestic airlines are in a grave situation, insiders tell Fortune India, with aviation turbine fuel (ATF) costs reaching new highs. They are considering a collective strike in the next week to ten days. What if all domestic airlines went on strike at the same time and advertised in the newspapers that they had saved billions of rupees by not flying the country anywhere that day? What if many of the players reduced the number of flights on sale, causing costs to skyrocket? What if some of the smaller players chose to close their doors?

Domestic carriers, pummelling by one problem after another since March 2020, we're considering all of these and other desperate options. On Tuesday, June 21st, aviation minister Jyotiraditya Scindia will convene a meeting with the CEOs of all carriers, as well as members of the finance and petroleum ministries, to discuss the industry's pressing needs.

Airlines have hiked rates in the hopes of covering 60-70 percent of the cost of ATF, but they are not shouldering the entire load. Fares have been creeping up in recent weeks, but loads have remained steady. However, airline executives are aware that, at some time, passenger numbers will begin to decline, and demand in India's price-sensitive market may begin to wane.

The sector has been requesting that the government bring ATF under GST for a long time, even before the Ukraine war wreaked havoc on oil prices (goods and services tax). While the government is listening to its demands, it has either not been able to implement them or has not bought into them.

Trust Deficit

Insiders and executives in the industry are baffled as to why their appeals to various government agencies have gone unheeded. The business has long concluded that the fundamental reason is that the government does not want to appear to be associated with a luxury industry, which is a fallacy in and of itself, given that nearly 150 million passengers traveled domestically in 2019.

Another reason why government officials are skeptical of the airline industry's dire situation is that, unlike most other firms, airlines do not require working capital loans to launch flights, and fares are received in advance. "Fares begin to collect the moment a sector or route is established, and they generate working capital for the airline," says an airline CFO who has worked for three Indian carriers. He claims that this is a significant edge that just a few other industries enjoy. Overall, most airlines are not concerned about debt because aircraft financing is well-established and does not affect their liabilities.

There is no actual gestation period for the asset (the aircraft) to begin to offer returns, unlike debt from infrastructure corporations and other similar industries.