India's Airlines Feel Squeeze

India's once-highflying airline industry is encountering serious financial turbulence. The rapid expansion of the commercial-aviation sector in India during the past decade has symbolized the nation's economic progress. But a dire combination of rising costs, sinking ticket fares and high levels of debt has left left carriers reeling and looking for government help. The most pressing crisis surrounds Kingfisher Airlines Ltd., which faces a cash crunch. The carrier, controlled by billionaire liquor tycoon Vijay Mallya, will release quarterly results Tuesday. It has grounded dozens of flights in recent days to reduce costs, and is engaged in talks over how to raise capital and pare back its $1.2 billion in debt. Other carriers are facing their own problems. Jet Airways Ltd., India's largest airline by market share, last week posted a loss of 7.13 billion rupees ($142.6 million) for the quarter ended Sept. 30, compared with a profit of 124 million rupees a year earlier. Discount airline SpiceJet Ltd. said it also swung to a loss. State-owned Air India Ltd. continues to be weighed down by big losses despite attempts to restructure its sizable debt pile and slim down its work force. Kapil Kaul, South Asia chief executive of the Centre for Asia Pacific Aviation, predicts Indian carriers will post combined losses of at least $2.5 billion in the fiscal year ending in March. "We have a chronically loss-making industry and a seriously underperforming one. It's also severely undercapitalized and fundamentally unviable," Mr. Kaul said. One exception, he said, is Indigo Airlines, a closely held carrier that is generating profit and growing quickly because of efficient management and prudent fund-raising. A variety of woes have befallen other Indian carriers, analysts say: Many Indian airlines have pursued aggressive debt-fueled expansions, adding routes without strengthening their balance sheets for difficult times. The rupee's depreciation of late has increased real costs. Rising global oil prices have hit Indian carriers particularly hard because they face government fuel surcharges that add 60% to 70% to their bills, Mr. Kaul says. All of that is compounded by an aviation system that is generally inefficient, with runways and air-traffic systems not being run optimally. The government is considering a variety of plans to restructure Air India to keep it aloft, but its losses continue to mount. Among the government's options for private carriers are to offer some relief from the fuel surcharges and loosen restrictions on foreign investment so that foreign airlines can buy stakes in Indian carriers. The Indian commercial-aviation sector stagnated through the 1990s, even as it began to slowly liberalize and privatize. The sector's growth accelerated in 2003 as new carriers entered the marketplace and as an emerging middle class began to increasingly turn to air travel as a viable transportation option. Domestic air-passenger traffic increased from 11.7 million in 2003 to 51.6 million in 2010, according to the government. But, similar to the mobile-phone industry—another symbol of Indian modernization that has turned unprofitable amid recent price wars— the competition in aviation has taken a toll. Price cuts have left all carriers bleeding revenue. Read more. (Subscription required.)