In November this year, IndiGo, India’s largest airline by market share, decided to charge passengers for every seat reserved during web check-ins. The charges ranged from Rs100 for a middle seat in the last row to over Rs800 for extra-legroom spots in the first.

Following a social media backlash from passengers, the budget carrier later retracted its decision.

IndiGo’s move, and the subsequent retreat, is emblematic of the conundrum that India’s aviation sector as a whole grappled with in 2018. Given the cut-throat competition, no airline can afford to invite passenger ire, or, for that matter, raise fares easily.

Unable to raise ticket prices, which would have offset the double-whammy of high crude oil prices and a falling rupee, most Indian airlines flew into the red this year. This is despite the fast growth in passenger traffic.

“While the growth of Indian aviation has been phenomenal, the rise in fuel prices, the depreciating Indian rupee, state taxes on ATF (aviation turbine fuel), high parking, landing, navigation charges, and other such high-cost contributors make business challenging for airlines in India,” Leslie Thng, CEO, Vistara, a joint venture between the Tata Group and Singapore Airlines that launched in early 2015, told Quartz.

Profits remain elusive

While the first signs of turmoil came in the April-June period, by October there were clear signs of a storm.

For the three months ended September, IndiGo reported its first losses since listing on the stock exchange three years ago. For the quarter, losses at InterGlobe Aviation, which runs and operates the airline, stood at Rs652 crore ($89.1 million). In the same quarter a year ago, it had posted a profit of Rs551.6 crore. The airline posted a loss even though its revenue increased 17% on the back of flying more passengers.

SpiceJet, India’s fourth-largest airline by market share, also reported losses in the first two quarters of the year and has also delayed its payments to the Airports Authority of India (AAI).

But the plight was particularly dire for Jet Airways, India’s oldest private airline. In the September quarter, the company posted a net loss of Rs1,297 crore on revenues of Rs6,236.69 crore. In the year-ago period, Jet Airways had posted a net profit of Rs49.63 crore and clocked revenues of Rs5,758.18 crore.

The third consecutive quarterly loss came despite Jet attempting to streamline costs. The embattled company has been struggling with salary payouts and has also reportedly failed to make payments to the owners of its leased aircraft. Jet’s house was in such chaos that it has been desperately scouting for a buyer, according to reports. But it has failed to find one. The salt-to-software conglomerate Tata Group was reportedly interested but it would settle only for a controlling stake in the company, which promoter Naresh Goyal opposed.

Losses at airlines like Jet will take the combined losses of Indian aviation to $1.9 billion this financial year, according to aviation consulting firm CAPA India.

“Into the first two quarters of the year, the problem of currency and crude played out. Both rose and fell very quickly and sharply. But one good thing this time is that the industry as a whole recognised that it was in trouble and that they needed policy support,” said Ashish Nainan, an aviation sector analyst with CARE Ratings.

While ATF prices are up 15.56% compared with January, the Indian currency is down by under 10% so far this year. A weak rupee hurts airlines as most of their costs are dollar-denominated.

Ironically, the losses have come amid fast growth in passenger traffic.

More and more Indians are flying each year. In the last four years, passenger traffic has grown at an average of 15-20% per annum, according to official estimates. In 2000-01, India’s airlines flew 13.7 million passengers; at the end of 2017, this ballooned to 123 million, according to data from the Directorate General of Civil Aviation, the sector regulator.

Demand growth in 2018 is expected to be the highest in the world, and India is poised to become the world’s third-largest aviation market by 2024, according to recent estimates by the global airline body International Air Transport Association (IATA).

UDAN scheme

While most of the passenger traffic growth has traditionally come from the big cities, in 2017, prime minister Narendra Modi’s government announced the regional connectivity scheme, named UDAN.

The policy aims to connect India’s smaller towns and cities, besides making air travel affordable. New airports were developed at smaller and unserved destinations like Shimla, Agra, and Gwalior. A total of 128 routes were awarded to various airlines as part of the UDAN scheme. Prices of half the seats on every aircraft in these routes were capped at Rs2,500.

But a year on, the scheme has hardly taken flight. Infrastructure has been a huge hindrance. Both government- and private-owned airports have been reluctant participants. They say they have very limited benefits, as regional air connectivity flights do not have to pay landing and parking charges.

India’s airlines that had expected to make the most of UDAN are on the verge of shutting down. Zoom Air, launched in 2017, has not flown a passenger since July. In November, the Airports Authority of India cancelled 58 licences of regional carriers Air Odisha and Deccan Charters for irregular flight services. Together, the two carriers were awarded 84 routes under the UDAN scheme.

“UDAN hasn’t seen any success because of the way it is structured. It is pretty complicated. And it didn’t work because it was a political gimmick. It was good for getting the votes but as an aviation scheme it didn’t work,” said Mark Martin, founder and CEO at Martin Consulting.

The smaller airlines are also pitted against the might of the scheduled operators. IndiGo and SpiceJet have bagged 20 routes under the scheme, while Air India’s Alliance Air has 18 routes.

More failures

Given the challenges of running an airline profitably, the government revived plans to sell-off national carrier Air India early in the year. In March, the government said it wanted to divest 76% of its stake in the carrier, which had debts of Rs52,000 crore then. After initially expressing interest, both Jet Airways and IndiGo backed out of the race, citing concerns with the terms of sale.

An attempt to sell 51% of its stake in Pawan Hans, a government helicopter transport firm, too failed to gather steam. Investor sentiment was also weak for the government’s attempt to sell 10% its stake in the defense Hindustan Aeronautics Limited (HAL) through an initial public offering in March.

“2018 has been a disastrous year for Indian aviation. It was a year of failure. First it was the failed attempt to sell Air India, then Pawan Hans. And then failure to privatise HAL,” Martin said.

Safety concerns

The year has also been a mess for the aviation sector with regards to safety issues. In an aviation-safety audit conducted by the United Nations’ International Civil Aviation Organisation, India slipped from its previous score of 66% to 57%. For the Asia-Pacific region, India’s air safety score was lower than countries like Myanmar, Bangladesh, Maldives, Pakistan, Sri Lanka, Nepal and, even North Korea.

There were also concerns regarding the safety of engines made by the American aerospace manufacturer Pratt & Whitney (P&W). IndiGo and GoAir had to ground aircraft fitted with a certain batch of P&W engines, as the DGCA flagged concerns.

The crash of the Indonesian low-cost carrier Lion Air on Oct.29 sent ripples across India, too. The Boeing 737 Max 8 model has been under global scrutiny ever since. On Dec. 06, the DGCA sought simulator training in potential exigencies for pilots flying Boeing’s 737 Max 8 aircraft.

Six Boeing 737 Max aircraft—five owned by Jet Airways, and one by SpiceJet—are in use in India. Besides, the two airline companies have also placed orders for over 200 more such aircraft.

New year, new goals

So, the aviation sector is set to start the new year on a grim note. “Going into 2019, over the next six months, the aviation sector would be looking at a 10-15% growth. Second, though it has cooled off considerably, the crude oil fear would be the key going into the year,” Ninan said.

India’s biggest airline company has goals set for 2019, key among them is capacity addition.

“At this stage, we are comfortable with our long term strategy when it comes to our capacity plan and believe that we can create a comprehensive network for our customers. Our capacity plan is made up of new deliveries and we have 530 A320 family aircraft on order,” an IndiGo spokesperson told Quartz.

Vistara, which has a market share of 3.8% in India, had a good run in 2018. It expanded to 22 domestic destinations and grew its fleet to 22 aircraft. In line with its strategy to foray into international markets, Vistara also placed an order of 56 aircraft, a combination of purchased and leased, narrow-body as well as wide-body aircraft from Airbus and Boeing, Thng said.

“The next year looks even more promising for us as we are hopeful of getting the approvals for the launch of our international operations. The delivery of aircraft from our new order would also commence in 2019 resulting in expansion of our fleet and network,” Thng said.

Emails sent to Jet Airways and SpiceJet remained unanswered.