The sector, one of the most vibrant symbols of India's economic progress, is going through its "worst-ever phase," says Civil Aviation Minister Praful Patel, with airlines facing total losses of $2-billion this year.

The result is that India's airlines are in shakeout mode with the largest domestic airline, Jet, striking an alliance last week with arch-rival Kingfisher.

The deal includes code-sharing, route rationalisation and pooling crews.

Jet chairman Naresh Goyal said bluntly the tie-up with liquor baron Vijay Mallya's Kingfisher Airlines, known for its five-star service and slogan "Fly the Good Times," was crucial or both would "have gone bankrupt."

Jet Airways lost 2.53 billion rupees ($52-million) last year while Kingfisher has just reported a nine-month loss of 1.88 billion rupees.

The cash crisis also forced Jet last week to lay off 1900 workers, only for the company to perform a dramatic turnaround and rehire the employees following political pressure in India where the West's "hire-and-fire" culture is frowned upon.

The sector posted a combined loss of $938-million last year and the industry expects that figure will more than double this year.

"The industry is saddled with 30 percent excess capacity. Each airline is forced to sell tickets below cost price," Goyal said.

"The situation is a mess"

Passenger growth has slowed from 33 percent in 2007 to 7.5 percent in the first half of the year and was negative in August when 17 percent fewer people flew compared with a year earlier.

"The situation is a mess," International Air Transport Association chief Giovanni Bisignani said recently. "India is among the worst performers (globally)."

Analysts had long predicted consolidation in India's skies crowded by new carriers that took off five years ago in hopes of wooing a growing middle class — but not on this scale.

The Jet-Kingfisher tie-up — which gives them control of 58 percent of the market — came after Jet merged with budget airline Air Sahara and Kingfisher swallowed no-frills carrier Air Deccan.

There are now just a clutch of low-cost carriers left such as Indigo, Go Air and SpiceJet, all also in the red, and a few small players plying niche routes.

However, Goyal promises India will not go back to the "bad old monopoly days" dominated by two state carriers and a couple of private airlines.

"We'll pass on the benefits of synergies (with Kingfisher) to passengers," he said, though a monopoly inquiry has been ordered into the alliance.

Price wars to blame

The sector's woes began with a vicious price war that hit airline balance sheets. The cheaper fares prompted a migration from congested trains to planes, suddenly revolutionising travel habits in the country of more than 1.1 billion.

But a surge in global fuel prices pushed the airlines deeper into the red and forced up ticket prices, bringing people back to India's extensive and far less expensive train network.

Indian Railways, in fact, is scooping up unemployed airline staff to work as "train hostesses" for its "luxury" runs and is reporting a leap in reservations.

Dipa Sharma switched to the train, travelling to capital New Delhi last week from southern Kozhikode city with her two children for a family wedding.

"We'd have flown but the fare was 10 500 rupees each way. With the children it's too much," she said.

No plans for government bailout

The railways' resurgence is also being fed by a widening domestic economic slowdown and a tumbling stock market amid global financial turmoil.

Despite the airline industry's problems, the government has rejected its calls for a one-billion-dollar bailout.

But Civil Aviation Minister Patel said he wants to lower taxes on aviation fuel as well as cut landing, parking and control tower fees to help the airlines.

Even if that happens, the clouds will not lift soon, according to experts.

"We'll see very difficult and turbulent times especially from the financial perspective for the entire industry" for up to two years, said Kapil Kaul, India head of the Centre for Asia-Pacific Aviation.

Still, aircraft makers Boeing and Airbus are bullish long-term on India's aviation market, despite not clinching a single new plane order at the just-concluded India Aviation show in southern Hyderabad city.

Some executives call it wishful thinking but the aircraft makers are sticking to a forecast India will buy 1000 aircraft over the next 20 years.

Indian aviation "has a great future," said senior Boeing vice-president Dinesh Keskar, citing forecasts the economy will grow by an annual average of 6.7 percent over two decades compared with a forecast world average of 3.2 percent.