Lufthansa Airlines

It was a dream come true when the low cost airline business burgeoned in India, fulfilling the dream of flying for many Indians. Today is the day when there is hardly any contrast in fare between the low cost domestic airlines and state run Air India.

While low cost airlines have instead become high cost airlines, the five star airlines (at least considered as five star airline) like Kingfisher are facing its extinction. Is it Kingfisher's awry business strategy or the government's faulty policies that is grounding India's one of the most popular airline? The answer lies in a fact that we will be covering in this article.

Thailand's Prime Minister, Yingluck Shinawatra, paid a State visit in Jan 2012, as a chief guest for Indian Republic day celebrations. The visit did what India had been looking for: bracing its forgotten look east policy. As a result, there were 6 bilateral agreements signed, including the treaty of transfer of sentenced person.

Though India's business and trade ties with East Asian countries came back on the right track, India's airport authorities gave a big blow to trade ties, by forcing Thai Air Asia and Air Asia (Malaysia) to reduce the number of flights to Thailand and Malaysia from New Delhi. The reason was high operating costs at Indian airports, that include high airport and fuel charges. Air AsiaX, a long-haul subsidiary of AirAsia, has completely pulled out from India for the same reason.

India already has a high sales tax rate on Aviation Turbine Fuel (ATF), which is one of the highest in the world, at 24 percent. It is believed that these taxes are proposed to be increased further, making India a high cost market for airlines. Fuel surcharge alone is the major part of the total fare on domestic airlines.

Airport charges will also be hiked. The Airports Economic Regulatory Authority has proffered an increase of 280 per cent in landing and parking charges at Delhi airport. The airport operator had asked for 774 per cent increase in the charges.

Meanwhile, one of Europe's largest carrier, Lufthansa airline, has pulled out from the city of joy, Kolkata (Calcutta). Sources from the industry said that a lack of route profitability and unpredictable fuel costs have posed challenges for European carriers trying to operate out of Kolkata [Read: No flights: Europe drifts further away from Kolkata | The Statesman].

Following the steps, Austrian Airline pulled out from Mumbai on 25th March 2012, and Air France is reducing its frequency to Delhi, Mumbai and Bangalore to six flights a week in its summer schedule. Though Airlines did not disclose a countrywide financial data, global profits of these airlines have come under pressure, due to increased competition and high operating costs. [Read: Austrian Airlines, Air France to reduce India flights | Business Standard]

In a statement, Austrian Airline said it was suspending its Mumbai flight, "due to the challenging economic situation.'' The airline has suffered operating losses of $100 million (Rs 650 crore) in the past two years and is restructuring operations. The airline said it was focusing on Israel and Tehran and would ply the Boeing 767 it used in Mumbai.

Till date, the trend was that the majority of international carriers were delaying or cancelling their services routes to several countries, except India, even in the downturn, considering the country’s market potential.

“Now passengers are just not travelling, with companies resorting to video conferencing due to cut in the travel budget. Several international carriers are mulling reduction in the frequencies or pulling out from India,” said a senior executive with Kingfisher Airlines Ltd.

In another similar move, British Airways had suspended its flights between Kolkata and London Heathrow around 3 years back. The airline has operated flights to Kolkata intermittently since the 1930s and currently operates three flights per week [Read: Foreign airlines start pulling out of India as traffic declines].

“The decision to suspend flights between Kolkata and London has been a difficult one to make. However, the route is not making a profitable contribution to our business and we are unable to sustain it,” Amanda Amos, British Airways’ area commercial manager South Asia, said in a statement. “India remains an incredibly important market for British Airways and we continue with our growth plans on routes that we believe will be profitable.”

KLM Royal Dutch, Singapore Airlines, Air Mauritius and Finnair are also in the line to pull out or reduce the number of flights to India.

In the end, India's faulty policies have not only blemished the business of domestic carriers but have also troubled International carriers that they had to pull out. With ongoing contention with European Union over Emissions Trading System (ETS), India, Russia and China might also ban flights complying with ETS to fly over their airspace. Thus, European carriers, flying to East Asia, will have to follow a longer path taking a round of Africa and then over Indian ocean, which could be economically unfeasible.

In a consultation meeting with Airports Economic Regulatory Authority, British Airways, Air France-KLM and Lufthansa said they would reconsider their expansion plans for India, saying the proposed increase of 774 percent in charges is very high.

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