Despite a significant fall in oil prices, domestic airlines are set to post losses of about $1.4 billion collectively during fiscal 2014-15, as per estimates by aviation consultancy firm Centre for Asia Pacific Aviation (Capa).
Despite a significant fall in oil prices, domestic airlines are set to post losses of about $1.4 billion collectively during fiscal 2014-15, as per estimates by aviation consultancy firm Centre for Asia Pacific Aviation (Capa). The reasons are that the operating environment continues to remain tough, demand sluggish and carriers continue to face increasing cost pressures, while yields remain low with several new entrants coming in and further denting the market share of existing carriers.
While Jet Airways and SpiceJet have reported their results, others, including national carrier Air India, and unlisted companies IndiGo, GoAir, Air Asia India, Vistara and Air Costa, are yet to announce their results.
The combined losses for Indian airlines, as per Capa data, stood at $1.77 billion during fiscal 2013-14, significantly higher than Capa prediction of $1.4 billion. Between September 2014 and January 2015, jet fuel prices in India have declined by 24%. Meanwhile, the accumulated losses of Indian airlines touched $10.6 billion during the past seven years.
Jet Airways halved its losses to Rs 2,097.41 crore during FY15, while its revenues improved by 10% to Rs 20,965.60 crore during the same period.
Similarly, low-cost carrier SpiceJet, which changed its ownership during the year, trimmed its losses to Rs 687 crore for fiscal 2014-15, down from Rs 1,003 crore losses it reported during the previous year. The airline’s revenues, however, shrank to Rs 5,202 crore during the recently concluded fiscal, from Rs 6,304 crore the previous year.
SpiceJet, which suspended its operations for a few days in December after being unable to pay its vendors and oil marketing companies, has significantly cut down on its fleet size during the fiscal. The airline, which had 57 aircraft in its fleet at the end of FY2014, had only 32 aircraft in its fleet at the end of March 31, 2015. The airline is looking to lease aircraft to increase its fleet in the coming months.
Meanwhile, national carrier Air India is expected to post a net loss of Rs 4,346 crore on total revenue of Rs 21,290 crore and operating expenses of Rs 22,525 crore for fiscal 2014-15.
The national carrier, however, expects to post an operating profit of about Rs 10 crore during FY16, its first annual operating profit since the implementation of the government-approved turnaround plan (TAP) in 2012.
During the first nine months of FY15, Air India’s total revenues stood at Rs 16,000 crore, while its operating expenses were Rs 16,700 crore. The airline posted an operating loss of Rs 1,700 crore and a net loss of Rs 3,600 crore during the period.
“The financial results of airlines for the recently concluded fiscal will be better than the previous year mainly due to the fall in jet fuel prices. Since jet fuel costs contribute to about 40-60% of total costs incurred by airlines, the fall in the global crude has come as a sign of relief for Indian airlines,” said a senior Air India executive.
“However, the Indian aviation sector faces several challenges apart from the high jet fuel prices, which include exorbitant airport charges and high taxes on aircraft maintenance. Also, jet fuel in India continues to be one of the most expensive in the world, which is up to 60% costlier than Middle Eastern and south-east Asian geographies. Unless this change, Indian airlines, especially the smaller ones, will find it difficult to make profit,” the executive added.
Some industry experts feel that government intervention in the form of widening foreign direct investment (FDI) limit into Indian airlines could also help them out of the red.
“….the FDI inflow (in the Indian aviation sector) has been very low at about $4 million. The government needs to review the 26% cap on FDI, as well as streamline the various polices to promote greater investment. India’s acquisition programme and its offset policy can potentially generate investments in excess of $20 billion along with creating massive employment for skilled and professional manpower,” Dhiraj Mathur, leader (aerospace & defence), PwC India, said in a Ficci-PwC Report on the Indian aviation market.
Analysts at Capa, however, opine that the need of the hour is to address structural challenges in the aviation sector.
“The government should take this opportunity to push through with bold decisions such as classifying ATF as a ‘declared good’ that would result in a uniform sales tax of 4% across the country. Combined with the fall in base prices, this could reduce airlines’ operating costs by a game-changing 30% that would stimulate growth and set the industry on a more viable long term trajectory,” adds the above mentioned Capa report.