Go First declared bankruptcy in May 2023, citing financial losses caused by a variety of factors, including the Covid-19 pandemic, increased fuel costs and engine procurement issues. Go First, originally GoAir, is an Indian low-cost airline that was set up in 2005 by the Wadia Group.
The Go First bankruptcy has had a big impact on the Indian aviation industry. The airline held around 9 per cent of the domestic market share and its closure has left a void that other airlines are scrambling to fill.
This has resulted in higher fares, which may eventually be detrimental to customers. Let us now look at the causes and concerns that have arisen as a result of these developments.
The causes
The Covid pandemic had a devastating impact on the airline industry worldwide and Go First was no exception.
The pandemic caused a significant drop in passenger traffic, forcing the airline to ground several of its planes and lay off personnel.
Also, rising fuel costs put tremendous pressure on the airline’s budget. Furthermore, the airline was having problems with its Pratt & Whitney engines. These issues resulted in flight delays and cancellations, severely eroding the airline’s financial performance.
The airline employs over 7,000 people, and its closure has led to a significant number of them losing their job. In addition, Go First’s bankruptcy is likely to lead to higher airfares.
With one less airline in the market, there will be less competition, and airlines will be able to charge more for tickets.
This will make air travel less affordable for many people. Go First’s bankruptcy is a reminder of the risks involved in this sector.
Way forward
The government could probably provide financial support to Go First, or to other airlines that are struggling financially. This would help to keep these airlines afloat and prevent them from going bankrupt.
Tax breaks could probably be offered to the airlines, which would help them to reduce their costs. These could be a few of the possible remedies initially to minimise the impact of Go First’s bankruptcy on the domestic aviation industry.
In addition to these, the government could also take steps to improve the efficiency of the aviation sector. This could include measures such as streamlining regulations, reducing bureaucracy and improving air traffic management. By making the aviation sector more efficient, the government can help reduce costs and make air travel more affordable.
The bankruptcy of Go First is a setback, but not a disaster, for the aviation industry. With the right measures, the government can help minimise the impact of the bankruptcy and ensure that the industry continues to grow. It is still too early to say what the long-term impact of the bankruptcy of Go First will be. But the bankruptcy is, no doubt, a reminder of the fragility of the airline industry.
Saravanan is a Professor of Finance and Accounting at IIM Tiruchirappalli, and Williams is project manager-ESG at Good Vision Seva Trust