Why do India’s airlines keep struggling to take off?

Everyone puzzled by how the Indian economy manages to develop fast while somehow failing to be successful could do worse than look at the state of India's airlines. The passenger growth in India has been rapid over the past four years. The number of flights taken has increased between 15 and 20 percent per year. This year, the demand growth is probably to be the highest in the world. However, the industry itself hasn't benefited and almost all Indian airlines are struggling.

Jet Airways Ltd, the oldest private airline in India has suffered losses for three consecutive quarters now. Its increasing current liabilities have risen to $2.2 billion. The airline is struggling to pay its pilots and has reportedly failed to make payments to the owners of its chartered aircraft. It's also faced difficulties to pay its airport fees. One more airline, Spice Jet Ltd., has been in the red for two quarters and is also making delay to pay to the Airports Authority of India. For the first time, the market leader, IndiGo affirmed a quarterly loss recently since going public in 2015.

It may be easy to blame the vulnerability of this sector on variables beyond airlines' control. Indian airlines make losses with the increase in the price of fuel and these also make losses when the rupee depreciates. Aviation is worldwide notably crisis-prone. But there's something special, about Indian aviation, which appears to be in a nosedive even as demand is rising faster than anywhere else.

The reality is that the sector has also been weakened thanks to the errors by both the private sector and, significantly, the government. Companies have lobbied as if their lives depended on it; governments have intervened as if their reelections depended on it. The result is that for decades now, market forces have been muted in the sector.

Yet Jet Airways has profited in the past off government action. The airline, which is 24 percent owned by Abu Dhabi-based Etihad PJSC, benefited incredibly from a controversial judgment by the Indian government to multiply the number of seats allowed between Indian airports and the huge Gulf hubs of Dubai and Abu Dhabi. This moderate treatment was notably different than that handed out to Jet's biggest domestic competitor for a decade, Vijay Mallya's Kingfisher Airlines, which had been denied to stop and refuel its long-haul flights in the Gulf - something that would have harshly decreased its fuel bills and might be kept it flying longer. (Kingfisher collapsed in 2012, and Mallya is currently in exile in London, where he is fighting extradition requests from the Indian government that charges him of desertion with money from state-controlled banks.)

The interference of Government is also stifling the future of the sector. Connecting smaller Indian towns and making short-haul flights profitable is essential to Indian aviation's expectations for the future. However, Prime Minister Narendra Modi has insisted on a populist and uneconomic $35 price cap for such flights. Few airlines have been interested and those who were exposed that metropolitan airports would prefer to give their limited landing slots to bigger and more remunerative jets. Naturally, the new proposal to connect smaller airports seems to have gone down before it took off, with airline licenses being canceled left and right.

Now, the state-owned Air India, which lumbers along adding to its losses. Every year, the overstaffed and incompetent airline places taxpayers deeper in debt. Worse is its harmful influence on the sector as a whole. Finally, it's hard for any private airline to increase fares when one of its rivals seems to have no real budget limit and can keep fares at whatever seems politically suitable.

Currently Jet is in search of investors. Etihad - which is bleeding cash itself - might have to accelerate. No one else looks really interested, and absolutely not unless they win a controlling stake; nobody was showing interest in buying Air India either when the government put it up for sale earlier this year. The Tata Group, which already runs one airline - Vistara - has reportedly been interested in both, but that's because the group has had a fixation with airlines ever as Tata Airlines was state-owned in the 1950s and turned into Air India. Unless you are a little gripped or has already invested in this sector, who's interested to run an airline in India?

The difficulties of its aviation business are a microcosm of how the Indian economy works. From the exterior, all should be going its way - strong demand, smart companies, and sound essentials. But a mixture of private sector audaciousness and government interference means that it's more difficult to make constant profits here.