Rough runway

Updated: Sep 28 2013, 07:18am hrs
Even as Indias civil aviation sector reels under plummeting domestic traffic and losses, Tata Sons Ltd has teamed up with Malaysias AirAsia and Singapore Airlines in two separate ventureswith the first for a domestic low-fare service and with the other for a full-service airline. In the meantime, Jet Airways has offloaded 24% stake to Abu-Dhabi-based Etihad Airways.

In FY13, Indias airline industry lost over R12,000 crore, as per the estimates of Centre for Asia Pacific Aviation. The total debt of the industry, excluding rental adjustment, is around $13.3 billion. Compounding losses is the high price of aviation turbine fuel (ATF). A higher tax and a falling rupee have made ATF, which accounts for 40% of airlines revenues, more expensive here than anywhere else in Asia and the Middle East. Fitch Groups India Ratings estimates that the tax erodes the operating margin of Indian airlines by around 12-18 percentage points. Apart from this, domestic carriers are also subjected to higher taxes on aircraft leases, aircraft charges, maintenance cost, etc.

Despite the odds, private domestic carriers have increased their market share after the open skies policy was introduced in 2005. Currently, they account for over 80% of the departure on domestic services, with the national carrier left far behind. Private carriers now account for around 70% of the total planes in operations and are expanding their fleet.

IndiGo, Indias largest airline by passengers-carried, reported a sixfold-plus increase in profit for FY13. It was the airlines fifth consecutive profitable year, something that no other airline has been able to achieve. The company attributed the success to a combination of capacity deployment and yield management. IndiGo increased its fleet capacity last year even as the overall industry figure shrunk mainly because of the grounding of Kingfisher Airlines. State-run Air Indias FY13 losses are at a staggering R5,000 crore while Jets and SipceJets are at R485 crore and R191 crore.

With low-cost carriers bagging 65% of Indian fliers while full-service carriers flying the rest, down from 58% of the passenger numbers in 2010, the time is ripe for Tata-AirAsia to bite into Indian aviation pie.