Illustration: Jayachandran/Mint
Illustration: Jayachandran/Mint

Opinion | IndiGo’s move reflects headwinds industry faces

Airlines and the government have to work together to achieve India's dream of a billion passenger trips a year in 15-20 years

IndiGo roused people on Sunday as it disclosed that all its passengers will have to pay extra for web check-in starting 14 November, and that check-ins at airports will remain free. The step, announced on Twitter, caused an explosion of public rage on social media, prompting the government to take notice and order a review.

The airline, however, appeared to have backtracked a day later in the face of sustained public fury, saying it has not changed its web check-in policy, and that passengers will not compulsorily have to pay for all seats but only those that come with extra facilities such as more legroom. It said also that there is no charge applicable on web check-ins.

Charging passengers who choose their seats in advance is not a new phenomenon as it offers an avenue to airlines to grow their ancillary revenue, especially in India where intense competition, high fuel prices and a weak rupee have put airline margins on a squeeze. But what has rattled all is IndiGo’s proposal to charge any passenger who uses the internet for advance check-in of their flights.

Globally, several airlines charge passengers for services that can range from choosing one’s seat to extra baggage or in some cases carry-on baggage, priority handling, buying tickets online and meals. IndiGo’s move on web check-ins, however, seems counterintuitive as carriers, especially budget ones, tend to prefer travellers who arrive at airports with boarding cards in their hands or those who use self check-in kiosks at airports. Passengers who fail to do so are even charged for getting their boarding cards printed at airport counters.

This is for several reasons, the key being it helps to avoid long queues at airport counters, which means less manpower being deployed and cost savings, while also ensuring operational efficiencies and on-time departure of flights.

The civil aviation ministry said it has taken note that airlines are now charging for web check-in for all seats, it said on its Twitter account. “We are reviewing these fees to see whether they fall within the unbundled pricing framework," it said.

To be sure, the Indian government does not regulate airfares, leaving it to the forces of market dynamics. However, a spokesperson for the Directorate General of Civil Aviation said it is looking into the IndiGo issue.

IndiGo’s attempt to shore up its ancillary revenue mirrors a wider malaise in the Indian civil aviation industry. InterGlobe Aviation Ltd, which runs IndiGo, posted a 97% plunge in net profit in the June quarter—the sharpest drop in profit since it listed on the stock exchanges in November 2015. That quarter, its fuel expenses jumped 54% on-year.

Jet Airways, meanwhile, is on a desperate hunt to raise cash. SpiceJet Ltd, the second-largest budget carrier, also reported its second straight quarterly loss in the April-June period.

Airlines are posting losses as jet fuel prices rallied in the past year, swelling their operating costs. Meanwhile, they have to keep fares low to stimulate demand and to fill up the thousands of new seats getting added each year. Carriers in India are expected to post combined losses of up to $1.9 billion this fiscal year largely due to rising costs and low fares, aviation consulting firm CAPA India said in September. The forecast is up from the $430 million to $460 million loss CAPA estimated in January as the rupee weakened and oil prices surged.

Fuel comprises 30-40% of the cost of operating an airline in India. In addition, a weaker rupee hurts all airlines as they pay for most of their costs in dollars. It has become a case of the more airlines fly, the more losses they incur.

Meanwhile, the government is talking about non-interference in matters of running airlines on the one hand and reviewing IndiGo’s latest decision on the other. But a move to bring aviation turbine fuel under the goods and services tax is long overdue amid a political slugfest as state taxes on fuel is currently a substantial source of revenue. The modest 3 percentage point excise duty cut on jet fuel in October will help only so much. The government has also yet to take proper notice of high infrastructure costs, especially parking and landing fees at major airports.

Airlines and passengers meanwhile continue to suffer. With the country ranking as the fastest-growing aviation market in the world, India needs more airports, especially smaller ones, to cater to the growing pack of budget airlines. Such airports will have fewer frills and lower airline charges, which the carriers can hopefully pass on to customers.

To achieve India’s dream of one billion passenger trips a year in 15-20 years, airlines and the government have to walk hand in hand as only an affordable and safe flying will make the Indian middle class decide to make the shift from the train to the plane.

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