India airline sector flies into big losses as fuel prices surge

(XFN-Asia) India’s 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 passenger growth. Its woes pushed the airlines to a combined loss of USD938 billion in the fiscal year to Mar-08 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 USD6.1 billion projected by the International Air Transport Association last week if oil stays around USD135 per barrel until year-end.

India head of the Centre for Asia Pacific Aviation, Kapil Kaul, said “Aggressive consolidation is inevitable… 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.” According to Kaul, right now, India’s airlines are losing an average USD30 a passenger.

With fares costlier, domestic air passenger traffic rose just 8.7% in Apr-08 year-on-year – the slowest rate in four years – as travellers switched back to trains and cars or opted not to travel. Passenger growth now is far slower than the annual 25% expansion the government forecast until the end of the decade.

Kaul said”We should see these things (consolidation and route rationalisation) start happening by July, August when the (Indian) off peak season starts… 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 low cost carrier, Air Sahara, by Jet and low-cost Deccan by Kingfisher.

With the global oil price surging, airlines have increased their fuel surcharge five times during the past five months. Even with the fare increases, jet fuel now accounts for nearly 50% of operating costs.

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

Meanwhile, carriers battling to survive are seeking a ceasefire in fare competition. Jet Airways CEO, Wolfgang Prock-Schaeur, said “Airlines are speaking to each other to end the policy of low-priced tickets that’s making everyone bleed… [but] raising fares means a problem in filling up planes.”

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

Kaul added that, 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.”

Source : Centre for Asia Pacific Aviation

About Devesh Agarwal

A electronics and automotive product management, marketing and branding expert, he was awarded a silver medal at the Lockheed Martin innovation competition 2010. He is ranked 6th on Mashable's list of aviation pros on Twitter and in addition to Bangalore Aviation, he has contributed to leading publications like Aviation Week, Conde Nast Traveller India, The Economic Times, and The Mint (a Wall Street Journal content partner). He remains a frequent flier and shares the good, the bad, and the ugly about the Indian aviation industry without fear or favour.

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