In our opinion, here are 4-5 points explaining why the airline business is challenging and how it affects airlines in India:
1. Airlines face various challenges, including commoditization, government regulation, and high operational costs. For airlines to remain profitable, they need to fill seats, and any empty seats can hurt their profitability.
2. In India, despite an increase in domestic passenger traffic, many airlines have shut down, leading to a demand-supply mismatch, especially on certain popular routes. This mismatch has resulted in higher ticket prices, making air travel less accessible to the general public.
3. The Indian government has introduced the UDAN scheme to make flying more affordable by subsidizing airlines and capping fares. However, high airport charges, taxes paid abroad without input credit, and a lack of maintenance facilities contribute to the high cost structure.
4. The previous 5/20 rule, which required airlines to operate for five years in India and have 20 aircraft to fly overseas, limited airlines' ability to earn revenue. The government has since relaxed this rule to allow airlines to operate on local routes with 20 aircraft to start flying abroad.
5. Foreign direct investment (FDI) restrictions prevent Indian airlines from acquiring new technology and best practices, making it challenging for them to compete globally. Although the Indian government allows 100% FDI in airlines, foreign carriers can only invest up to 49% in Indian airlines.
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