Turbulence may not leave Indian air space in 2012

Written by Debabrata Das | Updated: Dec 31 2011, 05:59am hrs
Domestic airlines will continue to seek life support from the government as heavy debt, soaring losses, rising fuel prices and archaic route disbursal guidelines continue to make them bleed.

I am sceptical about the carriers ability to forge plans which would enable them to tackle the situation unless policy changes are in place, said Jet Airways former executive director Saroj Datta.

Consultants say airlines losses will mount further. All Indian carriers, listed and unlisted, will together lose $2.5 billion or R13,269 crore in the fiscal ending March 2012, Centre for Asia Pacific Aviation or CAPA, a global research firm that tracks aviation, said in its 2012 outlook on December 23.

Two listed full-service carriers Jet Airways and Kingfisher Airlines and low-cost carrier SpiceJet lost R1,878 crore in the two quarters until September of the financial year even as passenger traffic grew 17.6% between April and November from the same period previous year.

Debt piled up primarily to purchase planes will slow recovery. Three carriers state-owned Air India, Jet Airways and Kingfisher Airlines owe lenders $16 billion. According to CAPA, airlines spent $6-7 billion to purchase planes as the market grew.

The forecast is for increased growth in traffic, but I think financial recovery will be slow, says Kishore Jaleel, a former international affairs analyst with Emirates. It would help if the Indian carriers withdrew from their ambitious foray into the international market where they compete with large, established players.

Heading into 2012, airlines will continue to struggle to raise equity and will need to take on additional debt, further eroding viability, says CAPA.

Most of the expenses to run an airline is beyond management control like aviation turbine fuel which takes up 40% of operating costs. Kingfisher has pitched for direct fuel import and leasing storage depots saving commissions to public sector oil companies.

Airlines will not have much control over fuel prices except to the extent of hedging mechanisms deployed by them, says Vishwas Udgirkar, senior director, Deloitte India.

Kingfisher Airlines, which shut down its low-cost carrier Kingfisher Red in September raised the logic whether full-service carriers should also run a low-cost carrier and compete with low-cost carriers cheaper fares.

Some say Indian full-service carriers can take a leaf out of the global book. Internationally, full-service carriers operate on long haul routes, leaving shorter routes to low-cost carriers.

Full-service and low-cost models are incompatible and one should not compete with the other, says Kishore Jaleel, who worked with Emirates. The knee-jerk reaction to cutting losses is to cut fares to fill seats and full-service carriers should charge reasonable full fares to survive.

Many experts say unless government intervenes, carriers cannot survive for long. Direct fuel import and doing away with route disbursals could help. The losses may force the government to review its archaic policies, says Datta.

I believe there is very limited interest from foreign airlines to invest in Indian carriers. It seems that there is no reason why they would want to invest in loss-making airlines unless they get a controlling stake. says Datta.

New route disbursal plans are on the cards after a decade and a half. However, airlines are keeping fingers crossed on whether this will force them to fly unprofitable routes.

Why should private airlines be forced to operate on routes where they cannot make money wonders Jaleel. Let Air India fly those routes; they will not make money anyway, he adds.

Current guidelines require airlines to deploy 10% of their capacity operated on Category I routes (major routes like Mumbai-Delhi) to Category II routes. There is a proposal to increase the number of Category I routes under the new guidelines.

Dont you think rules should be reviewed and revised 17 years later in the light of the changed state of the industry asks Datta, adding that because of such guidelines, the problem of excess capacity has cropped up on Category II routes, landing them in losses. The new outlook on route disbursal is pivotal, says Bhatia of the Bird Group.