Lufthansa says starting local airline in India a ‘misadventure’

Mumbai/New Delhi: Deutsche Lufthansa AG said starting a domestic airline in India, the world’s fastest growing aviation market, will be a “misadventure” because of high jet fuel taxes and the cost of operations.

Lufthansa’s comments come weeks after Qatar Airways Ltd said it plans to start an airline in India with as many as 100 planes, as the Gulf carrier looks for a bigger share of a market projected to sell half a billion domestic tickets in a decade. Singapore Airlines Ltd, Etihad Airways PJSC and AirAsia Bhd. have also bought stakes in local carriers buoyed by an emerging middle-class flying for the first time.

“You only go make business when you have business plans which give you hope that you can be very successful,” said Wolfgang Will, a senior director for South Asia at Lufthansa, “And I did not hear up to now of any domestic airline in India making a lot of profit.”

Lufthansa has a history of running an Indian airline. It was part of a partnership that ran ModiLuft, which was grounded in 1996 after disputes over payments with the German carrier, creditors, oil companies and the Airports Authority of India. The airline’s permit was later used by two entrepreneurs to start SpiceJet Ltd, now India’s second-largest budget carrier.

Lured by an expanding market, more airlines are coming up in India. At least 43 businesses have applied to Indian regulators in the past two years to start some form of passenger air transport service in what’s projected to be the world’s third-biggest aviation market by 2020 and the largest by 2030. The increase in local traffic—estimated to reach half a billion in a decade—has outpaced all other markets for 23 straight months.

Fuel costs

Still, the nation is home to some of the world’s costliest jet fuel, mainly due to provincial taxes of as much as 30% and cut-throat competition that forces airlines to sell tickets below cost. Aviation turbine fuel in India costs 70% more than it does abroad, and has led to the shuttering of as many as 17 airlines in the past two decades, according to a research paper by KPMG and The Associated Chambers of Commerce of India.

Indian carriers lost money every single year for a decade before posting a combined profit of $122 million in the year ended March 2016, helped by a crash in oil prices, according to Sydney-based CAPA Centre for Aviation. The industry is set to report losses of as much as $750 million in the two years ending March 2018, according to CAPA estimates. Bloomberg