India's airlines seek to expand

Air India, the state-owned airline created through the merger of Indian and Air-India, could scale up fleet size to nearly 200 by 2011 against the anticipated 125-130.
Other carriers have similar expansion plans — Jet Airways has a fleet target of 110 by the same year against 62 at the end of June 2007. The obvious question at this stage, with most airline companies in the red, is whether this expansion is justified.
Undoubtedly, there is demand for aviation services, as evident in the 30%-plus growth in passenger numbers. The issue is that this demand is available at a price that does not appear to be viable, largely because of policy-induced high cost structure of domestic aviation.
Aviation fuel, the single biggest item of expenditure for an airline, continues to be unduly expensive in India because of high duties imposed by states. For instance, 38% of Jet Airways’ operating expenditure was on fuel in April-June 2007 quarter.
The international norm for a similar-sized airline, even at a time of high crude price times, would be about 25%-30%. Together with high explicit and implicit costs of infrastructure, this makes domestic operations unviable, and hence the clamour for permission to fly overseas.
06/09/07 Economic Times

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Categories: General Aviation Sep 2007