India is one of the cheapest domestic airline markets in the world and promotions such as $50 one-way tickets on the two-hour flight from Mumbai to Delhi are easy to find.
Indian airlines are expected to post combined losses of up to $1.9 billion this financial year led by full-service carriers like Air India and Jet Airways driven by rising costs and low air fares, aviation consulting firm CAPA India said. The loss forecast for the 12 months ending March 31 is up from an estimated $430 million to $460 million sector-wide loss in January largely due to the depreciation of the rupee and a rise in oil prices, CAPA said in a report released on Monday evening.
Ticket prices have not risen to compensate for higher costs, and CAPA said with the exception of Interglobe Aviation Ltd’s IndiGo, none of the airlines have strong enough balance sheets to comfortably withstand higher costs and lower yields.
“Most carriers are ill-equipped to withstand cyclical downturns,” CAPA said in the report. “Airlines have completely lost pricing power as a result of the rapid influx of capacity.” India is the fastest-growing domestic aviation market in the world and carriers have placed orders for hundreds of new Airbus SE and Boeing Co jets.
But airlines have struggled to stay profitable despite filling nearly 90 percent of seats and seeing a more than doubling of domestic passenger numbers over the last four years.
India is one of the cheapest domestic airline markets in the world and promotions such as $50 one-way tickets on the two-hour flight from Mumbai to Delhi are easy to find. CAPA estimated Indian airlines, including money-losing state-owned Air India Ltd, need an additional $3 billion of capital in the near term to shore up their balance sheets.
The government in June said it had failed to attract bidders for a 76 percent stake in the national carrier, which is dependent on handouts to keep operating. Jet Airways (India) Ltd last month reported a quarterly loss of 13.23 billion rupees ($185.79 million) and said it was seeking to cut costs, inject capital and monetise its frequent flyer programme.
Budget carrier IndiGo, the country’s largest airline, in July reported its lowest quarterly profit in three years, with earnings down 97 percent due to rising fuel costs and foreign exchange losses.