India's low-cost airlines are set to go from strength to strength as they grab market share from ailing premier carriers such as Air India, whose debts and losses continue to pile up, experts say. Big airlines such as Jet Airways, Kingfisher and Air India are being hit by falling revenues due to tough economic conditions and high air fuel taxes.
The smaller, "no-frills" carriers such as Spicejet or Indigo, set up to open up the skies to the country's burgeoning middle classes, have dealt better with the turbulent business conditions of the last year, analysts say.
At least seven budget airlines fly across India's skies, with a 40-percent market share. "By December-end, we estimate this to rise to 70 percent," said Kapil Kaul, South Asia chief executive of the Centre for Asia Pacific Aviation (CAPA) consultancy. A sign of the predicament facing India's private airlines - which carry 80 percent of local air traffic - was seen last month when bosses threatened to ground planes for a day unless the government gave them a bailout.
The demand was denied but a strike was averted when the government promised to take steps to reduce the burden of steep fuel taxes.
Air India posted a 1.03-billion-dollar loss last financial year and has appealed for nearly 620 million dollars in state aid to keep flying. Jet Airways lost 2.25 billion rupees (47 million dollars) in the quarter ending June, while Kingfisher Airlines reported a net loss of 2.40 billion rupees in the same period.
Kingfisher's flamboyant chairman, Vijay Mallya, has said: "Our losses are no longer sustainable. It costs us more to fly than to stay on the ground." Losses for the entire Indian aviation sector last year are put at some two billion dollars.
This means Indian airline losses represented nearly a fifth of the 10.4-billion-dollar loss posted by the industry globally last year, even though the country accounts for just two percent of the world's flying public.
The situation is a far cry from five years ago, when a clutch of new airlines was launched amid predictions of double-digit passenger growth as the government opened India's skies to more competition. But the growth was too rapid, analysts say, leading to over-capacity. By 2007-08, India's airlines were in shake-out mode with Jet striking an alliance last October with arch-rival Kingfisher. The deal includes code-sharing, route rationalisation and pooling crews.
"The first round of consolidation - Jet buying out loss-making Sahara, Kingfisher buying out Air Deccan, were strategic mistakes," CAPA's Kaul said.
Mihir Shah, analyst with brokerage firm Prabhudas Lilladher, added: "India's airlines saw excess capacity and intense competition. When the economic downturn came, their business travellers were being replaced by the leisure class."
Kaul said the situation was "alarming" as major carriers were making losses, but added: "If there is a bad business case, we need to allow airlines to exit." State taxes imposed on jet fuel are high at an average of 26 percent. Fuel costs are also 70 percent more expensive than the average paid by airlines globally.
Such factors have combined to leave Air India, Jet and Kingfisher with a combined debt of eight billion dollars, analysts said, with six billion dollars more expected to be added by 2012. Gaurang Shah, chief fund manager with Geojit BNP Paribas Financial Services, suggested larger Indian airlines will have to cut more routes, fleets and staff to keep flying.
On the other hand, low-cost carriers like Spicejet and Indigo appear better placed, as they do not have a legacy of high debts, he added. Spicejet showed a net profit of 263.42 million rupees (5.39 million dollars) for the quarter ending June against a net loss of 1.29 billion rupees a year earlier.
Comments
Comments are closed.