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Just because foreign airlines may soon be allowed to invest in India's battered carriers doesn't mean they will.
New Delhi's expected move to allow global airlines to own as much as 49 percent in Indian carriers has been welcomed by investors as a potential lifeline for an industry mired in $20 billion of debt and on course to rack up $3 billion in annual losses.
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But aviation-industry experts say any celebration is premature.
"There's absolutely no reason to be bullish on airlines," said a Mumbai-based analyst with a local brokerage, who did not wish to be identified. "Unless fuel and other dollar-denominated costs come down, nobody's going to invest in these companies, they're in such bad shape," he said, referring to a 16 percent decline in the rupee in 2011, which has driven up costs for local carriers.
Five of the country's six main operators are loss-making.
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Taxes in India make jet fuel far more expensive than for global competitors. State-owned Air India, in the midst of an attempt to restructure $4 billion in debt, has slashed fares, forcing competitors to follow suit.
Two carriers, IndiGo and Go Air, have between them ordered about 200 planes for more than $23 billion, adding capacity to a market where dozens of planes already sit grounded.
And changing ownership rules will do little to alter India's unappealing market dynamics or regulatory environment.
"Every airline will be interested in India because it's such a big market. But the environment should be conducive to the proper business processes," Akbar Al Baker, CEO of Qatar Airways, told Reuters recently.
India boasts the fastest-growing passenger market in major economies, as it soared 17 percent to almost 61 million people last year, and the potential is huge. With a comparable population, China's domestic air passenger market is five times the size of India's.
"This is going to be the most important market for the next two to three decades. They [foreign players] need to have a very credible India story," said Kapil Kaul, regional head of the Center for Asia Pacific Aviation (CAPA), an aviation-consulting firm. (See "India's Airline Growth.")
But, while global giants like British Airways, Singapore Airlines, and fast-growing carriers from Persian Gulf states covet an Indian presence, they may see little advantage in committing capital without further regulatory and competitive changes.
Meanwhile, the global airline industry is not in the best of health, either, as high fuel prices and sluggish economies in the United States and Europe crimp travel demand.
In December, the International Air Transport Association (IATA) warned that airlines faced more than $8 billion in overall losses this year if Europe's debt crisis spirals, and, even in a best-case scenario, the global industry was likely to see profits halve this year from nearly $7 billion in 2011.
