The big aviation crisis: From flight cancellations to pilot shortage, why has India's aviation story gone sour?

On April 1, T.V. Mohandas Pai was stuck at the Bengaluru airport. The former Infosys CFO and Chairman of Manipal Global Education and Aarin Capital Partners was scheduled to travel to Ahmedabad on a Vistara flight at 10:30 am, but the departure was pushed back to 12 pm. With no prior intimation from the airline, Pai took to social media platform X to vent his frustration: “Why did they not message the delay? Terrible service, no announcement, no clarity.” Vistara, in its reply, refuted Pai’s claims of not sending out communications, saying it had communicated the delay to the “registered contact details present on the PNR” and said that the flight “was delayed due to operational reasons”.

Pai wasn’t the only one. Several Vistara passengers travelling in early April found their flights being cancelled—many at the last minute—as the airline, which held a 9.8% share of domestic passenger traffic as of March, cancelled dozens of flights. According to estimates, Vistara cancelled 80 flights on April 1, while 190 were delayed. Together, these formed some 75% of the airline’s average daily flights.

Trouble had been brewing at Vistara—which has a fleet size of around 70 aircraft and flies to 50 destinations, domestic and international—since early March. There were repeated flight cancellations at the airline, a joint venture between the Tata group and Singapore Airlines, which the management blamed on unfavourable weather conditions, traffic congestion and other unforeseen factors. Industry watchers say the key reason came to the fore in end-March: a disagreement over new payment terms—in the run-up to its merger with sister airline Air India—between pilots and the management. As pilots went on unplanned leave, the airline had no option but to cancel scheduled flights.

Vistara is not alone. From pilot shortages, lack of back-up staff and limited infrastructure to low turnaround time of aircraft and tight cost efficiency model of operations, most leading airlines in India are operating under severe stress, often resulting in abrupt flight cancellations, unannounced delays, and poor customer service. The grounding of aircraft due to Pratt & Whitney engine issues in recent months by leading players like IndiGo has meant a lower number of flight-worthy aircraft, while passenger traffic has steadily risen since the pandemic (domestic traffic bounced back to 136 million in FY23).

According to aviation expert Jitender Bhargava, a former executive director of Air India, the above-mentioned issues have put further strain on a system that was already stretched. “Factors that are beyond one’s control—like the fog in winter months—have disrupted operations. But when multiple flights are delayed and it is clear to the airlines that their daily schedule is already impacted, then not informing the passengers in advance is not acceptable. This happens due to a lack of coordination between the airlines and the airports,” he says.

Latest data from the Directorate General of Civil Aviation (DGCA) shows that weather-related issues resulted in 58.9% of the flights cancelled during February, while technical snags were responsible for nearly 20% of the cancellations. If fog is the biggest pain point in the winter months, technical snags take the crown as temperatures rise. In March, for instance, technical snags caused nearly 38.6% of the cancellations, while weather-related issues contributed to 15.6% of them.

At the core of weather-related issues is the dense fog that envelops North India in winter. Experts say the disruptions occur due to lack of infrastructure and resources. To land and take off in fog, airlines need to have adequate pilots trained for such weather. “But how does an airline send its pilots for training? Since most of them are operating with the least possible number of pilots, sending pilots for training would mean cancelling scheduled flights, which none can afford to do,” says Bhargava. Airlines in India follow the low-cost model, which restricts maintaining back-up crew and aircraft, a delay on any route or a pilot being absent could potentially lead to a flight being cancelled.

Business Today got in touch with several airlines but they declined to be a part of the story.

The low-cost model

Airlines may have embraced the low-cost, high-efficiency model, but despite that, leading players in the space continue to operate in the red. For instance, Air India, which was taken over from the government by the Tata group in January 2022. In FY21, the last full year for the airline—that has a fleet of some 120 aircraft—under the government’s control, Air India’s net loss after extraordinary items stood at Rs 6,564 crore. A year later, it expanded by 46% to Rs 9,557 crore. In FY23, the figure went up 19% year-on-year, to Rs 11,388 crore. “The cost structure that an airline like Air India is operating under is a major roadblock for them to turn any profits at the net level. The fixed costs are quite high and it cannot cut that down, irrespective of demand or sale of seats. That is a key reason most airlines are in losses for years,” says Rajat Sharma, Founder CEO of Sana Securities.

Vistara has never delivered profits at the net level since its inception in financial year 2014-15. From Rs 199 crore in FY15, its net losses snowballed to Rs 1,397 crore in FY23. Then there’s SpiceJet, that had a 5.4% share of passenger traffic in the first three months of 2024. Despite multiple attempts to revive the Ajay Singh-led airline, SpiceJet continues to be in the red. The airline, which has a fleet of nearly 40 aircraft, has continuously posted net losses since FY19; in fact, since FY14, SpiceJet managed to post net profit only thrice.

The only profitable airline is IndiGo, which leads the market with a share of 60.5% of passenger traffic. IndiGo, which has a fleet of more than 350 aircraft, has turned profitable in 9MFY24, after remaining in the red for the previous four years. In the October-December quarter, it saw its net profits surge a whopping 111% YoY to Rs 2,998 crore, while net sales grew 30% YoY to Rs 19,452 crore. The “positive results over the last five consecutive quarters are an outcome of robust demand for air travel and diligent execution of our strategy,” IndiGo CEO Pieter Elbers said in an earnings call in February. According to analysts, with nearly 70 aircraft grounded and rising passenger demand, IndiGo benefitted from better realisation during the period. “The supply chain issues started around 18 months ago… Our early actions enabled us to navigate the situation in a desired manner and helped us grow capacity in each and every quarter,” Elbers told investors.

Experts are not surprised that most of the airlines are in the red, as the operating model and environment make them susceptible to financial losses. According to Anil Radhakrishnan, research analyst at Geojit Financial Services, India is highly dependent on imported aviation turbine fuel (ATF), which alone accounts for 40-55% of airlines’ total expenses. Add to it additional expenses like rentals, aircraft repair and maintenance, and airport fees and charges, and these together make up 65-80% of airlines’ total expenses. With ATF prices being controlled internationally, cost escalations are not under any operator’s control. Moreover, depreciation of the rupee against the US dollar impacts their cost structure, says Radhakrishnan. Rishi Agarwal, CEO of TeamLease RegTech that offers regulatory compliance solutions, points towards the disparity between inflation and rise in airfares over the past one and half decades. Despite costs going up due to an increase in salaries and ATF prices, airfare growth has lagged in India. “Thus, airlines are constantly attempting to reduce costs. Today, an aircraft is idle only during the early hours and pilots are not getting enough rest as that would mean ‘lower utilisation of the resource’,” he says.

Since most airlines offer similar quality of services and domestic routes ranging up to 2-2:30 hours, passengers tend to choose the cheapest seats available. This has forced airlines into a cut-throat pricing model, further impacting their finances. “For most leading carriers, the uncertainty will prevail in the foreseeable future. The Indian aviation sector is prone to defaults and airlines going bankrupt is a phenomenon that has been in play for the past 40 years… the threats will prevail in the [near-term]… unless fuel prices become cheaper, like in the Gulf countries, which is unlikely,” says Sharma of Sana Securities.

Starting with ModiLuft in 1996 and Kingfisher Airlines in 2012 to Go First in 2023, the list of defunct airlines is long. Over the past four decades, at least 50 carriers have become defunct, mostly due to bleeding too much cash, say experts. Since 2012, at least three major carriers have turned defunct. Besides Kingfisher and Go First, which individually used to hold more than 10% of the market for the most part of their existence, Jet Airways also went defunct. Jet, which used to hold the second spot in the domestic market with a share of 13.8% in 2018, shut shop a year later.

The picture isn’t too rosy even for airlines that are operational, especially in terms of the share of passenger traffic. The share, even for the top players, has fluctuated like no other organised sector in the country in the past 10 years. While IndiGo and Vistara managed to gain market share steadily, others have had a torrid time. SpiceJet, which had a share of 14.9% of passenger traffic in 2019 and 2020 and held the second spot, is down to the fifth spot with a share of 5.4% in 2024. Air India saw its market share drop to 8.9% in 2022 from 12% in 2021, recovered slightly in 2024 to 12.5%. And Akasa Air, launched in 2021, is at the sixth spot after garnering a market share of 4.5%.

The way ahead

Let us get back to Vistara once more. After weeks of negotiations, the Vistara management claims that 98% of its pilots are on-board with the new pay structure. But pilots with Air India, too, are apparently unhappy with the proposed pay structure post the merger. While no official communication has come from Air India, people familiar with the developments say some pilots have already resigned in protest.

Meanwhile, in an internal communication, Vistara CEO Vinod Kannan informed the team that to minimise the trouble and inconvenience to its customers, the airline is scaling down its operations by 25-30 flights per day, which accounts for around 10% of its capacity. “It has been a challenging start to the new financial year. As you are no doubt aware, we faced significant operational disruption from March 31 to April 2… there were a multitude of reasons behind this, including ATC delays, bird hits, and maintenance activities early last month—all of which had a cascading effect on a highly optimised network. We were stretched on our pilot rosters and there was not enough resilience to withstand injects that we would otherwise have weathered. We could and should have planned better,” he said.

The depleted pool of flights for a peak season like summer has led to airfares shooting up by at least 10-15%, say industry watchers. Experts feel that such situations can be avoided if the ecosystem can keep pace with the steady growth in passenger traffic.

That is what the government wants as well. In January, Civil Aviation Minister Jyotiraditya Scindia stressed upon the government’s aim to boost India’s aviation market. At Wings India 2024 in Hyderabad—a four-day event to showcase the country’s progress in aviation—the minister shared the government’s plans for the sector, from increasing the number of airports in the country to 200 by 2030, while growing passenger traffic to 300 million a year. “We are not only focussing on airplanes and airports, but the development and enhancement of building a holistic airline ecosystem that has strong roots across the value chain. As part of this vision, we have doubled the number of airports in the country in the past nine years, increasing from 74 in 2014 to 149 now,” he said at the event.

Two months later, Air India CEO Campbell Wilson reiterated Scindia’s point. Speaking at an industry event in Gurugram in late March, Wilson said that the airline industry in India is growing so fast that the country could support at least one more international hub besides Mumbai and Delhi. “There aren’t many other markets like India in the world. Northern India has a good east to west flow, while southern India can offer an Asia to Africa or Australia-Europe flow,” he said.

The optimism over India’s civil aviation sector is reflected in the airlines’ preparations for the future. In anticipation of the surge in passenger traffic, leading players have placed large orders with aircraft manufacturers Boeing and Airbus. Last year, IndiGo placed an order for 500 aircraft from Airbus, in addition to its earlier order for 480 planes. After the Tata group’s acquisition of Air India, the carrier ordered 470 planes from Boeing and Airbus, while Akasa Air placed an order for 200 aircraft with Boeing. In total, Indian carriers have placed orders for well over 1,600 aircraft that are expected to be delivered over the next decade.

Both experts and industry players continue to bet on growing passenger traffic. Between FY13 and FY20, before the Covid-19 pandemic disrupted the market, domestic passenger traffic in India had grown at a CAGR of 13.6%—from 57.9 million a year to 141.2 million. Since the pandemic, passenger traffic has bounced back to 136 million in FY23, and industry estimates suggest that it may have crossed the previous high in FY24. The question some experts ask, though, is whether this will sustain. And if it does, and new aircraft deliveries happen only over the next few years, there seems to be no respite for the industry and passengers in the near term.

@arndutt