A fare war in the air is threatening to thwart domestic airlines? return to profitability this fiscal. Analysts who expected the industry to turn profitable by the fiscal end are now revising their projections. Some of them even warn the scenario could turn as worse as before the 2008 downturn.

Since July 2010, average airfare on full-service carriers has dropped from R4,400 to R3,600, a fall of nearly 18%. For low-cost airlines, it fell from R3,900 to R3,500, down 11%. This, ironically, in a year when the price of aviation turbine fuel (ATF) ? airlines? biggest expense ? rose 40%. ATF accounts for one-third of the operating cost of an airline.

In this backdrop, aviation consultancy Centre for Asia Pacific Aviation (CAPA) India is all set to review its outlook for 2011-12. Earlier, it had projected that all carriers would collectively post a profit of about $300 million. However, that looks unlikely now, and hence the review. ?Our forecast was based on the assumption that pass-through will happen in case of fuel prices going up. In reality, just the opposite has happened. Fares have come down while ATF price has gone up. I think what is at play in the market is not economics,? CAPA India head Kapil Kaul told FE. He said a review of the outlook this month could project losses for the sector.

The sentiment is echoed by the Federation of Indian Airlines (FIA). Its secretary-general Anil Baijal told FE that while fares are commercial decisions by individual airlines, the industry?s returns were not commensurate with the growth in air traffic.

So far, only Jet Airways ? the country?s largest private sector carrier ? has announced its first quarter earnings and the outlook is hardly promising. The airline posted a a net loss of R123 crore during the period against a net profit of R3.52 crore during the same quarter last fiscal. In the preceding quarter, it had posted a net loss of R124.5 crore. Last fiscal, Jet registered a net profit of R9.69 crore.

In its earnings announcement, Jet Airways said that gross revenue per passenger of its wholly owned subsidiary JetLite fell 12.3% to R3,451 during the period. Though its gross revenue per domestic passenger increased 6.9% to R5,004, it doesn?t give the correct picture since this has increased largely due to increased demand for business class. The airline also said in the coming months, pricing activities by competition would continue, pressuring yields.

India?s two other listed airlines ? Kingfisher Airlines and SpiceJet ? are yet to announce their first quarter earnings, and are expected to post losses. State-owned Air India has accumulated losses of over R25,000 crore over the years and has a debt of R60,000 crore.