Airline losses mount, awaiting 49% FDI
While informing the Rajya Sabha that Indian air carriers are expected to have incurred R10,000 crore of losses in 2011-12, the civil aviation minister Ajit Singh said that an inter-ministerial working group has been constituted to identify the causes and solution for the country?s civil aviation crisis. Indeed, all airlines but the low-cost carrier IndiGo have been making losses?Kingfisher hasn?t posted a profit since its launch in 2005 and Air India since its Indian Airlines merger in 2007. So neither is the situation new nor are the causes/solutions a deep mystery. There is broad consensus that a mix of rising fuel costs, falling rupee, climbing debt burden and high taxes is to blame. Add to the mix a flag-carrier whose losses are backstopped by government bailouts and which thus muscles in price-cutting across the industry, and we have a predictably volatile mix. Some signs of relief are on the horizon, although they come from a mixed bag of sources?including government permission to tap ECBs to raise working capital, the rationalisation of capacity as a result of Kingfisher?s drawdown, and rising fares. But the need for big recapitalisation remains urgent and the minister should really focus on delivering the long-awaited policy change permitting 49% FDI in aviation.
With a strong and ongoing growth in demand in the region, IATA is expecting Asian airlines to report profits while warning western airlines to brace for losses this year. A significant portion of this growth is expected to come from low-cost carriers, which currently occupy only half of the seating capacity in Asia as compared to Europe. The other lesson from looking to the churn in Europe is that a carrier going down here or there doesn?t necessarily mean bad news for the consumers, with other carriers offering replacement services, whether via takeovers or not. Over in Brazil, when the state carrier Varig, long mismanaged yet considered too big to fail, was finally subjected to a bankruptcy auction in 2007, it was bought by a low-cost competitor. And we don?t even have to take Vijay Mallya?s word for suitors seeking his ?king of good times?. The CEO of the fast-growing Gulf airlines Etihad, which has recently gobbled up big parts of Air Berlin and Air Seychelles, has publicly taken note of Indian prospects.