Submit Press release  eTN Team ·  Advertising  ·  eTN Awards  - Worldtourism Events    

India


India airline sector flies into big losses as fuel prices bite

share this article

Jun 09, 2008

NEW DELHI (AFP) — India's crowded airline sector is flying into huge losses on the back of a surge in global fuel prices that have forced it to hike fares, slowing explosive passenger growth.

Its woes pushed the airlines to a combined loss of 938 billion dollars in the fiscal year to March 2008 and Aviation Secretary Ashok Chawla says the figure could double this year if oil prices remain at current levels.

The forecast represents nearly a third of total global losses of 6.1 billion dollars projected by the International Air Transport Association last week if oil stays around 135 dollars until year end.

"Aggressive consolidation is inevitable," said aviation consultant Kapil Kaul, who sees a shakeout in India, where a rush of new carriers created overcapacity and led some airlines to offer fares cheaper than train tickets.

"There will be exits, strategic alliances, airlines will have to work out how to share resources and rationalise route networks so carriers complement each other rather than compete," Kaul told AFP.

Right now India's airlines are losing an average 30 dollars a passenger, said Kaul, India head of the Centre for Asia Pacific Aviation.

Cheaper fares amid an economic boom created a massive migration in the past few years from India's congested trains to planes that revolutionised travel in the country of 1.1 billion people. But that shift is losing pace.

With fares costlier, domestic air passenger traffic climbed just 8.7 percent in April from a year earlier -- the slowest rate in four years -- as travellers switched back to trains and cars or opted not to travel.

Short-haul routes have been particularly hard hit as people turn to cheaper transport. Passenger growth now is far slower than the annual 25 percent expansion the government forecast until the end of the decade.

"Before, you might have flown to your cousin's wedding. Now you think twice," said a senior airline official who asked not to be named. "We're getting just 50 percent occupancy on some routes when it should be 80 percent or more."

India has five main carriers including the biggest domestic carrier Jet Airways, Kingfisher and state-run Air India along with a clutch of smaller airlines.

"We should see these things (consolidation and route rationalisation) start happening by July, August when the (Indian) offpeak season starts," said Kaul. "But the next 12 to 18 months will be very hostile."

The industry has already seen some consolidation in the past couple of years, with the mergers of state-owned carriers Indian and Air India and acquisitions of budget Air Sahara by Jet and low-cost Deccan by Kingfisher.

Even before crude skyrocketed, India's airlines were reeling from cut-throat competition and aviation turbine fuel (ATF) prices that were the world's costliest due to local taxes of up to 30 percent.

But the industry may have reached a "tipping point" with last month's 18.5 percent hike in jet fuel prices by state oil firms, said Kaul.

With the global oil price surging, airlines have hiked their fuel ticket surcharge five times during the past five months. Even with the fare increases, jet fuel now accounts for nearly 50 percent of operating costs, industry officials say.

The sector's problems have been aggravated by poor airport infrastructure and shortage of qualified staff.

"We've had a systemic problem with profitability in the industry," Kaul said.

Carriers, battling to survive, are seeking a ceasefire in fare competition.

"Airlines are speaking to each other to end the policy of low-priced tickets that's making everyone bleed," said Jet chief executive Wolfgang Prock-Schaeur. But "raising fares means a problem in filling up planes," he noted.

The Congress-led government is worried about the fate of the sector, whose expansion it had trumpeted as one of its big achievements.

Its "growth story is now at crossroads. It is a matter of time before this dynamic sector becomes unhealthy," Aviation Minister Praful Patel warned last week as he pushed for a government emergency package to support the industry.

In the short-term, the sector's problems could mean deferment of purchases of 25 to 30 aircraft this year, mainly in the narrow-bodied segment, Kaul said.

But he's upbeat longer term.

"Even with a slowdown, market dynamics will remain dynamic. Post 2010, we expect a better situation in terms of a more friendly cost structure, lower taxes, a better regulatory environment, better infrastructure," he said.

"But there's no magic wand right now except for making sure you've got sound management to pilot you through this," said Kaul.

AFP

India airline sector flies into big losses as fuel prices bite
wikimedia.org



Premium Partners