Airlines look to new revenue streams as fuel prices soar

Written by Shaheen Mansuri | Mumbai, May 20 | Updated: May 22 2008, 04:41am hrs
In a bid to combat shrinking profits owing to rising fuel prices, airlines in India have started looking at newer revenue generating streams, as well as beefing up their business through new promotional activities. Air India is studying the cargo market in various countries to generate over 10% of its revenues from this new line of business. GoAir, too, is planning to enhance its cargo capacity.

Meanwhile, private carrier Jet has introduced special holiday packages for its passengers, while Kingfisher is in the process of designing a similar strategy. Cargo operations of Air India, at present, contribute 6% to the airline's revenues. The company is now studying the South East Asian market to ascertain the potential of cargo operations to that region, which normally has a high cargo offtake from India, especially in perishable goods. Says an aviation analyst with a Mumbai based broking firm, "Airlines looking at alternative revenue streams assumes significance since it comes at a time when jet fuel prices are getting steeper each day."

Comparing the airline industry to the sugar sector, he added that a couple of years ago, the sugar industry was also reeling under margin pressure, and the players had to find out an alternative way of generating income. They started producing power from bagasse, after extracting the juice from the sugarcane to improve revenues.

Sudheer Raghavan, vice-president, commercial, Jet Airways, had told FE, "Currently, cargo operations account for 8% of our revenues. We plan to enhance it by 15% in a few months' time. We are planning to spruce up our cargo operations." He added that the airline is also in talks with international carriers to boost their cargo operations internationally. GoAir's chief financial officer, GP Gupta too said that his airline is at par with the industry trend of beefing up the cargo operations and courier services.

With most of the airlines eyeing the cargo space for higher revenues, analysts opine that the attractive recent economic growth rate and the rising international trade have fanned the growth in the cargo sector. "Second, airlines can offset their losses in the ensuing financial quarters by garnering income from cargo operations," the analyst added.

The newly introduced holiday package designed by Jet called 'Jet Escapes' offers a complete holiday package, which includes not only air travel but also a hotel accommodation for both domestic and international travel. Since the airline has introduced and is adding newer international destinations on its existing network, the strategy would certainly help to shore up their gross revenue per passenger.