Temporary Shutdown Of Two Airlines Raises Questions On The Aviation Industry & The Economy

The Logical Indian

August 5th, 2016

Image Courtesy: ainonlinetelegraphindia

Two airlines bow out
Today Air Costa announced it would shut its operations temporarily, Air Costa provided daily flight services to many cities including Bengaluru, Chennai, Coimbatore among others. Air Costa shutting its operations comes in the backdrop of Air Pegasus also halting its operations. Financial viability was one among the important reasons for the airline to shut operations. The halting of two airlines in a short span raises questions on both the aviation industry and the economy as a whole.


The low end of the high
Aviation industry, the high taxes which comes along with has always been a point of conflict between the industry and the government. Airlines caters to the high end of the population who reap the maximum benefits of economic growth. If demand is poor that makes airlines shut operations despite the competitive costs provided by the airlines, it points out to low demand among the high end of the population and on the tax structure, the aviation industry is subjected to. The question arises if demand is low in this segment of the population, it mirrors strains in our economy that are already under the burden of high taxes and high fuel price despite low crude.


Taxation and economy
The passage of GST could come as a temporary relief for the government which when becomes a law could give a boost to government’s tax revenues. But to sustain the momentum, economic growth has to reach to maximum people so that it can boost expenditure and thereby tax revenues. New taxes have been levied like the Swachh Bharat tax, increase in service tax and more. More taxes and high tax rates does not make sense for a economy growing close to 8 %, it makes sense when tax revenue or tax revenue growth is not as expected due to poor consumption sentiment. The sudden suspension of airlines also points to the same direction, even though, one can safely assume airlines face more challenges.

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