Airlines may face Rs 2,700 cr in Q2 losses on slashed fares

Written by fe Bureau | New Delhi | Updated: Aug 17 2013, 16:33pm hrs
The spate of discounts being offered by domestic airlines over the last two weeks in the lead-up to Independence Day, is expected to result in a combined loss of R2,400 crore to R2,700 crore for the airline industry during the second quarter of fiscal 2013-14, according to aviation consultancy firm Centre for Asia Pacific Aviation (Capa). The estimates do not take in to account Kingfisher Airlines as it is not operating.

The current yield environment is particularly poor, with July yields down approximately 18-20% relative to the Q1 average, and in August a further 5-8% decline is expected, Capa said in a report. The discounting appears to have been in vain as it has failed to stimulate the market and Q2 is likely to see only marginal year-on-year traffic growth. Load factors are primarily expected to see limited improvements.

At the beginning of August, Jet Airways offered 7 lakh tickets with base fares as low as R1,777 as part of a promotional offer. Rivals like Air India also offered tickets at discounted rates of around R2,000.

Low-cost carriers also dropped fares for a special three day booking window around Independence Day.

Such initiatives were aimed at stimulating the market and generating year-on-year growth in air passenger numbers. The data for July has not yet been released by the ministry of civil aviation but in June, domestic air passenger numbers fell 1.84% year-on-year to 5.01 million from 5.10 million a year ago. This was despite June being a peak season for travel. The fall also came after some revival was seen in May when air passenger numbers increased 4.84% year-on-year.

According to Capas report, domestic airline pricing regime in Q2 is indication of the irrational competition that exists in the market and there are no signs of fares stabilising until October 2013.

Meanwhile, the cost environment remains hostile with high fuel prices compounded by a weak rupee, the Capa report states. There exists an overall systemic weakness with low fares and high costs, and with the industry risks at a peak there do not appear to be any clear initiatives underway, either by the industry or government to correct the deteriorating financial situation.

However, despite the weak financial situation, Capa said that it expects one more deal, possibly from a West Asian carrier buying into a domestic carrier during the current fiscal.

The promoters must be willing to agree to valuations that are significantly below their original expectations, the report stated. Qatar Airways may be emerging as the next suitor.