India's aviation sector, long plagued by chronic financial distress among its carriers, may finally see structural reforms as the Union aviation ministry launches a study on financially stressed airlines. According to a report by Business Today, the ministry has "initiated a study on financially stressed airlines in India to assess structural challenges and identify measures to improve sector resilience." The initiative comes amid the ongoing West Asia crisis, which the report suggests could pave the way for long-awaited reforms to build financially viable airlines.
Study scope and stakeholder consultation
The ministry has asked airlines and other stakeholders to suggest reforms in policy, regulatory affairs, operations, contracts, procurement-related, and other areas. According to the report, the government plans to push these reforms to "help mitigate financial distress and support the sustainable growth of the airline sector in India." A senior airline official told the publication that reforms have been known for years and must be implemented before more carriers join the long list of failures—GoAir, Jet Airways, and Kingfisher Airlines.
Airlines' reform wishlist
Airlines have submitted a detailed set of proposals, according to the report:
- Aviation turbine fuel (ATF) under GST at 5% so it is fully recoverable against output GST.
- Remove GST on international flights.
- Single 5% GST slab for air tickets (not separate for business class).
- Reverse bidding of airports based on the lowest airport charges for airlines and consumers, as opposed to the current practice of seeking the highest revenue share bid per passenger.
- Price surveillance on monopoly routes (routes with less than two players).
Another top airline official added:
"Apart from the mandatory ATF under GST, import duty on engineering spares and parts needs reforms. Airport charges need to be reviewed, as if they keep rising, the cost of air travel will only increase. The readiness of airports to park the hundreds of aircraft that Air India group, IndiGo, Akasa and other carriers will get over the next few years has to be reviewed minutely. Flying training and maintenance training organisations need to be ramped up in both quantity and quality in India, given the aircraft orders of Indian carriers."
Current state of Indian airlines
According to the report, IndiGo was considered India's only profitable airline, but has now flown into the red. Air India's losses have led to serious concerns in Bombay House (the Tata Group headquarters). Emerging airlines including Akasa, Star Air, Fly91, and smaller players are also struggling. The report quotes an official who said, "The issues afflicting aviation in general and airlines in particular are systemic in nature due to which save IndiGo and Tata-basked AI group, there are no financially strong airlines in India."
Temporary measures amid West Asia crisis
The West Asia crisis has prompted the Indian government to provide more support to airlines than during the Covid-19 pandemic, including temporary steps such as cutting airport charges, first capping jet fuel prices for domestic flights, and then planning to move to a price stabilisation mechanism.
An official emphasised the need for fundamental strength:
"Crisis are cyclical in nature with one following the other. If the sector has intrinsic strength with the right reforms, its ability to weather storms and black swan events will be better. The chances of big failures will be lower."
Implications
The study marks a potential turning point for India's aviation sector, where historically almost every stakeholder except airlines has made money. If the proposed reforms—particularly ATF under GST and airport charge rationalisation—are implemented, they could lower operating costs and improve the financial health of carriers. For investors and analysts, the outcome of the study could signal the government's commitment to creating a sustainable competitive landscape, reducing the risk of future high-profile bankruptcies. The next milestone will be the release of the study's findings and any subsequent policy announcements.
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