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29 March 2024

Indian carriers could post $1.5bn losses

High oil prices and declining traffic are prompting some Indian carriers to take drastic steps to keep flying. (AFP)

Published
By Shweta Jain

High oil prices and declining traffic is pushing the Indian aviation sector towards a rough landing.

Indian carriers could post $1.5 billion (Dh5.51bn) in losses this year, the largest outside the United States, according to the latest statistics by International Air Transport Association (Iata).

Growth in the Indian aviation sector has slowed from 33 per cent in 2007 to 7.5 per cent for the first six months of this year. And, according to Iata, the past two months have been negative.

An increase in capacity with the start of at least six new carriers in the past five years is boosting capacity and forcing down fares to below-cost levels.

"Urgent action is needed to help Indian carriers weather the perfect storm of high costs and falling demand," said Giovanni Bisignani, Director-General and Chief Executive of Iata.

In the Middle East, the aviation trade body expects profits to drop by $100 million to $200m. "While some regions will show small profits, the negative impact of the industry crisis is universal," said Bisignani.

North American carriers, on the other hand, are expected to post losses of $5bn in 2008 making them the hardest hit by the crisis.

Airlines the world over will lose $5.2bn this year and a further $4.1bn next year, according to Iata, with fuel continuing to be the wild card. While the 2008 fuel bill would be $186bn – a $50bn increase in just one year, comparatively, the entire fuel bill was only $40bn in 2002. The 2009 fuel bill, meanwhile, is expected to rise, as per Iata estimates, as hedging offers less protection, to $223bn comprising 40 per cent of operating costs.

"While we expect the bottom line to improve by about $1bn next year, the industry will be $4.1bn in the red," said Bisignani.

Strict measures

The impact of the worsening global crisis is already prompting some of the Indian carriers to take drastic steps to be able to tide over rough weather. In a most recent development, business baron Vijay Mallya-promoted Kingfisher Airlines said earlier this week it would lay off 300 employees besides returning surplus aircraft.

The Bangalore-based airline took the step just a fortnight after it launched international flights and integrated operations with budget carrier, Simplify Deccan.

"As part of a concerted company-wide effort aimed at minimising the impact of the ongoing turbulence faced by the aviation industry, Kingfisher Airlines has, over the past six months, embarked on a series of restructuring measures designed to achieve cost savings and rationalisation and operational efficiencies," a company spokesperson was quoted as saying by Press Trust of India. "As a result, a set of 300 employees have chosen to move on and have parted ways with the company and/or put in their resignations," he added.

The carrier is also returning surplus aircraft to lessors, which are now redundant consequent upon route rationalisation.

"We have already returned two aircraft and are closely monitoring aircraft utilisation," the spokesperson said.

Kingfisher's move comes close on the heels of JetLite – the budget arm of Jet Airways – announcing its decision to downsize by about 750 employees.

Mumbai-based Jet Airways last month started its direct daily services to Dubai from Mumbai and Delhi. India's largest domestic carrier said it will remain unprofitable this year owing to a surge in fuel prices, and is expecting to break even in 2010.

According to Jet's Chief Executive Wolfgang Prock-Schauer, the airline may also raise fares during India's peak travel season starting next month.

"The airline's international operations won't be profitable this year. Fuel is one key factor that is hitting us hard. Also is the situation of overcapacity in Indian aviation," he was quoted as saying by Bloomberg.

The carrier gets almost half of its revenue from overseas ticket sales, and this year began flights to China, Hong Kong and the Middle East.

In another move, the National Aviation Company of India, the state-owned firm that runs the carrier Air India, said on Tuesday it wants to raise $1.15bn of loans to buy 21 airplanes from Airbus.

Key priority areas

Identifying three priority areas for Indian aviation sector – reducing costs, improving infrastructure, and adopting global standards – Bisignani said: "India is among the most expensive places to buy aviation turbine fuel. One kilo-litre of jet fuel costs Rs73,600 [Dh5,885] in Mumbai compared to the equivalent of Rs46,500 in Singapore. The 58 per cent difference is robbing Indian airlines of their competitiveness."

Bisignani also questioned the lack of transparency in India's airport and air traffic control costs. There is an estimated 20 per cent over-collection for air traffic control, while global operations are charged 33 per cent more than domestic flights to land at India's airports.