Low-cost carrier (LCC) operations in India appear to have encountered a problem. This phase began with claims of widespread IndiGo flight disruptions because a substantial portion of the company’s cabin crew took time off to presumably attend interviews with Air India.
Although the explanation may seem valid, it is untrue. In an effort to demand a rollback of salary cuts announced at the start of the epidemic, it is thought that a sizable portion of the crew had called in sick as part of a go-slow protest.
About the Difficulties
Because of its severe effects, on July 2 and 3, 55 and 29% of the carrier’s flights were postponed. Pilots had previously taken similar action against the airline. Early this month, the airline partially reversed the compensation reduction. But the country’s labor issues are still present.
Its airplane maintenance technicians (AMTs) recently took sick time off to protest low pay in Hyderabad and New Delhi. Several AMTs at Go First followed the lead of their IndiGo counterparts and did the same.
Why is the LCC segment problematic? Former IndiGo operations chief Shakti Lumba attributes it to the cultural shift brought about by the entry of LCCs into India’s aviation market. He claimed that because the newcomers were afraid of trade unionism, they created contracts that placed more emphasis on the duties of the employees towards the employer than the obligations of the employer towards the employees.
Aviation Experts and Low-Cost Carrier
The LCCs, in the opinion of aviation experts, seem unable to handle the requirements of various work groups. These actions, according to Satyendra Pandey, Managing Partner at aviation consultancy AT-TV, are motivated by resentment and misinformation. Salary expectations and the partial recovery of salaries and benefits are the main causes of unhappiness.
They are motivated by a problem with perception. IndiGo and Go First reportedly agreed to justify their compensation and eliminate any anomalies after first attempting to fire inactive AMTs.
Both airlines made statements in response to BT’s in-depth questions. It goes like this: “IndiGo is in constant dialogue with its employees to take care of any issues or grievances. The aviation industry has undergone a difficult phase. As business recovers, we are in the process of addressing some of the issues related to employee remuneration.”
Attempting to deny any protest on the part of its technicians, the Mumbai-based airline claimed that a handful of them was gone for two to three days. They have ongoing conversations where they explain the current situation and answer any issues that may arise. It is also made clear that, contrary to perception or what has happened in some other instances, they have restored salaries to levels seen before COVID-19 beginning in August or September 2021 for workers who were on unpaid leave.
Demand for Salary Restoration
The notion of a robust rebound in the sector is another factor driving the need for the reinstatement of salaries. In May, airport passenger volume reached 93% of pre-Covid-19 levels. Pandey claimed that the phrase “the flights are full with sloppy analysis that suggests that airlines must be doing well” is heard far too frequently. It disregards the sharp rise in input costs and the precarious balance sheets.
Numerous complaints have surfaced regarding deteriorating safety standards at SpiceJet, the second-largest airline in the nation by market share. According to a notification sent to the airline by the aviation watchdog Directorate General of Civil Aviation (DGCA), “poor internal safety monitoring and inadequate maintenance” may have jeopardized safety standards. A spokesman for the airline responds by informing BT that they will contact the DGCA within the allotted time frame.
The DGCA has conducted frequent audits of them. The representative for SpiceJet claims that all of the airline’s flights are done following the relevant DGCA regulations and that SpiceJet’s fleet of 57 aircraft is one of the newest in India. Following similar allegations at other Indian carriers, the DGCA has requested that all airlines make sure the required safety standards are being followed.
Bleeding Balance Sheets
The balance sheets of all carriers are bleeding in the post-Covid-19 period. The majority of carriers in the sector operate on slim margins because of the industry’s high-cost structure. Their balance sheets are put under stress by even a small interruption.
Managing Partner at law firm KLA Legal, Ajay Kumar said that not all LCCs are as fortunate as some airlines, who may have a cash reserve. Low-reserve airlines will likely struggle or even go out of business in the long run. Despite the enormous untapped potential of Indian civil aviation, the effects of the current crisis will be felt for at least two to three years, if not longer.
Additionally, airlines are finding it difficult to pay lease rentals and maintenance reserves to foreign lessors in US dollars because of the unpredictability and continuously growing cost of fuel combined with a drop in the value of the rupee.
Rise in Turbine Fuel Price
Between April 1, 2021, and March 31, 2022, the cost of aviation turbine fuel in Mumbai increased by over 84 percent, to ‘1,10,666’ per kiloliter. According to Kumar, numerous airlines have approached lessors asking for remission or postponement of lease rental payments. They won’t be shocked if airlines begin to breach their agreements with OEMs over accepting deliveries of previous aircraft orders.
In these conditions, a friendlier tax environment would be beneficial for the civil aviation sector. One of the first things the government might do, according to Kumar, includes ATF in the GST. Additionally, it might think about temporarily lowering other levies and airport costs. The strike also reveals a great deal about the sector’s fiercely competitive dynamics. This is probably going to get worse with the advent of Akasa Air and Jet Airways.