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The Indian government has allowed foreign direct investment in domestic airlines, yet the market remains blighted by a weak infrastructure and heavy taxes. What more needs to be done to turn around the industry's fortunes? Joanna Vickers reports.
Most of India's airlines are struggling despite an apparently ripe climate for growth. Heavy levels of taxation, strict government regulation and weak infrastructure are combining to push down the potential profitability of the sector.
Although the government has finally attempted to turn around the fortunes of the struggling industry, the intended solution - a relaxation of foreign direct investment (FDI) rules to allow foreign carriers to purchase up to 49% of airlines - is little more than a sticking plaster over the fundamental flaws.
India needs to address these structural issues before FDI can overhaul the industry. No real progress can be made before this is done.
A fertile climate
The domestic aviation market in India has tripled in the past five years, making the carrier the ninth-biggest civil aviation market in the world, by traffic numbers.
The Indian Directorate General of Civil Aviation has forecast domestic passenger numbers to grow by 15% annually, with more than 210 million passengers in the market by 2020.
The International Air Transport Association suggests that traffic at Indian airports will reach 450 million by 2020, making it the third-biggest aviation market in the world.
The Indian market remains underpenetrated - according to the World Bank, there are only 0.52 departures per 1,000 people, compared with 3.89 and 3.35 for Brazil and China, respectively, India's fellow Bric countries.
The climate for commercial aviation growth is clearly ripe in India. Yet, almost all Indian carriers are reporting heavy losses again and again.
Weak infrastructure
The Indian government appears to view aviation as a revenue source, rather than a generator of revenue.
The heavy tax burden inflicted by the state is a major issue holding back carriers' profitability. Indian airlines pay about 60% more in aviation fuel tax than the rest of the global market. As well as the central government tax, local states also impose a sales tax, which generally stands at between 22% and 26%.
These inflated taxes mean fuel costs make up 45% of Indian airlines' operating costs. This...