Jet, KF, AI return 34 planes to lessors on poor demand

India?s three largest airlines ? Jet Airways, Air India (AI) and Kingfisher Airlines ? which owned three-fourth of the total Indian fleet, returned 34 planes to their lessors since March 31 to match capacity with demand as passenger growth slowed this calendar year compared with 2011.

Kingfisher returned 11 aircraft to its lessors, Jet returned 6, and AI returned 17, according to data released by the Directorate General of Civil Aviation (DGCA). While Jet and AI said they returned the aircraft as their lease agreements expired, Kingfisher did not provide details.

Some carriers had to pay a penalty to lessors for early return of planes before the expiry of lease tenure. Kingfisher had to pay R684 crore for early return of their planes in the fourth quarter of 2012 fiscal. GE Capital Aviation Services, one of Kingfisher?s lessors, could not be immediately contacted.

In May, domestic carriers flew 54.48 lakh passengers, a fall of 0.87% over last year, the data DGCA showed. From January to May 2012, 258.07 lakh passengers flew, a growth of only 5.34% over last year. In 2011, the number of air passengers grew between 17% and 18% per month.

Liquor baron Vijay Mallya-owned Kingfisher, the third largest airline in India by fleet size in March with 55 planes, has now only 44 registered aircraft and has been overtaken by low-cost carrier IndiGo, which has 53 aircraft in its fleet.

?Kingfisher is operating 15-16 aircraft to fly 120 flights a day,? said a senior DGCA official. ?But they still have 44 aircraft registered; this is after we deregistered 11 of their planes since March 31.? The airline?s operations were under the DGCA?s lens after it cut flights in February without prior intimation to the aviation regulator. ?They have been giving us regular weekly updates on their fleet size and operational data,? the DGCA official added.

Kingfisher shares tanked 8.04% to close at R12.35 on the BSE on Wednesday following media reports that lessors had taken back aircraft due to non-payment of lease rentals.

However, the airline said the return of aircraft was voluntary. ?Whatever aircraft has been returned was voluntary and they were returned because they were surplus to operations,? said a Kingfisher spokesperson.

Consultants say the drop in capacity gives airlines an opportunity to align seat capacity with demand from passengers.

?It is a financially prudent move to send back the aircraft when the demand is lower,? said Amber Dubey, partner (aviation) at KPMG India. ?With airport charges and lease rentals quite high, it doesn?t make sense to keep the costly aircraft just parked without utilising them.?

The country?s largest passenger carrier by market share, Jet, had returned six planes. The Naresh Goyal-controlled airline had already planned this capacity reduction. ?We will return six to seven narrowbody planes this fiscal, which will result in capacity reduction on international routes,? said KG Vishwanath, vice-president (commercial strategy and investor relations), Jet, during an analysts call on May 25.

?There will be no increase in domestic capacity from Jet this fiscal and even industrywide, we expect a tempered growth in capacity,? he added. Jet, which had a fleet of 102 planes until March, now flies 96 planes.

Debt-ridden and loss making national carrier AI returned 17 planes cutting down its fleet size to 100. ?We sent the planes back as they were old and surplus to our requirements,? a senior AI official said on condition of anonymity. ?We are framing a business plan where in we are evaluating the number of planes and pilots we need for operating on profitable routes.?

The airline does not rule out more redeliveries of planes. ?There could be more redeliveries as well as leasing out of planes before the year end,? the official added.

A balance between supply and demand also helps keep the fares at a sustainable level.

?Fares are a function of supply versus demand and if the demand isn?t growing then bringing down supply is the natural course of action,? said Dhiraj Mathur, executive director of PricewaterhouseCoopers. ?The fares have been high because of lower seat capacity.?