Quotes of the Day

It is one of life's recurring unpleasant moments that Rajiv Mehta, owner of an interior-design company in New Delhi, has come to dread. During Mehta's frequent business trips in India, his flight often approaches its destination only to have the pilot announce that the plane will have to circle the airport for a while—not because there's bad weather or a mechanical glitch, but because of congestion on the ground. Mehta's plight is shared by thousands of his countrymen. Thanks to India's economic prosperity and the booming growth of its airline industry, more Indians are flying today than ever before. But they are enjoying it less, because more than half of all domestic flights are now delayed by 30 minutes or more. "We needed this boom because people need to travel and we need choice," Mehta says. "But in some ways [air travel] has actually become more frustrating."

While passengers are frustrated, so are airlines, which are starting to lose money despite brisk demand. The problem? Air travel has blossomed so quickly in India that the country's superannuated airports have been overwhelmed. After the government opened India's skies to greater competition four years ago, the annual number of domestic and international air passengers has nearly doubled from 48.8 million in the year ended March 31, 2004, to 95 million. Meanwhile nine private airlines have started up in recent years. Some, such as Kingfisher Airlines, are full service, but most are low-cost carriers that have wooed millions of travelers away from India's sluggish train and bus networks—and into its sluggish airports, which lack sufficient gates, baggage-handling equipment and other facilities to manage the influx. The crunch at New Delhi's airport is so bad that India's Aviation Ministry is refusing to allow an increase in departures this summer despite pleading from airlines.

Indeed, air carriers find themselves in a peculiar bind. Demand is high: the number of domestic air travelers is forecast to grow by at least 25% a year through 2010, according to Sydney-based Centre for Asia Pacific Aviation (CAPA), an industry consultancy. Yet due to the air-transportation system's capacity constraints, carriers are being forced to fight for new business by engaging in profit-destroying fare wars. Air Deccan, for example, advertises a special fare of just $6.60 plus taxes for a flight from New Delhi to Jaipur. Add in higher fuel prices and you've got a recipe for red ink. Analysts put collective losses for Indian airlines at $500 million last year, following a couple of years of robust profit growth.

The result: industry consolidation amid plenty. In March, the government approved a long-planned merger between state-owned carriers Air India and Indian Airlines; meanwhile, Jet Airways, the country's largest full-service carrier, is buying rival Air Sahara for $340 million. The mergers are "an attempt by players to basically get some kind of stability into the market," says Kapil Kaul, New Delhi-based CEO for India and the Middle East at CAPA. "There's been a massive induction of capacity over the past few years. What we're seeing now is sanity beginning to prevail."

That's certainly what the Indian government hopes will happen by combining Air India, which flies mainly internationally, and Indian, which concentrates on domestic routes. The state-run carriers have been losing market share to better-managed private airlines for years. India's Minister for Civil Aviation, Praful Patel, says the merger will improve operating efficiencies and cut costs by up to $150 million a year. Similar competitive advantages are being sought by Jet Airways. Jet became India's most successful airline after launching in 1993, but in recent years it has lost market share to low-cost upstarts like Air Deccan, IndiGo, GoAir and SpiceJet. Merging with Air Sahara will give Jet 27 additional aircraft and, perhaps more importantly, more gates at congested airports.

Further consolidation is likely. India, which has 13 airlines today, will eventually have just two or three full-service carriers and three or four budget airlines, predicts Kaul of CAPA. Their health may depend on how quickly planned airport improvements are completed. A new airport is scheduled to open in Bangalore next year; work is also underway on new terminals in New Delhi and Mumbai (formerly Bombay) with completion set for 2010 and 2012 respectively. These improvements can't come soon enough for travelers like Mehta, the New Delhi interior designer. "We've got all these new planes and flights," says Mehta, "finally they're starting to fix the airports." But until the government catches up with the private sector, India's airlines may find themselves stuck in a holding pattern.

• Simon Robinson