One by one, airlines fly into black hole

Bangalore: Much before the raging aviation turbine fuel (ATF) prices hit the profitability of Indian airlines, overcapacity in the industry was already eroding margins.
In January-March this year, one-fifth of the seats flew empty.
This put immense pressure on the pricing power of airlines because they were scrambling to get as many passengers as possible onboard. This, coupled with selling tickets below cost, has pulled carriers relentlessly into a financial quagmire.
Price warrior Deccan had reported a staggering net loss of Rs 213 crore in the fourth quarter ended March 31, 2007, or Rs 2.36 crores per day, when oil prices were below $70 per barrel and demand was growing at 20-30%.
But operators chose to ignore the writing in the sky. Despite 20% excess capacity in January-March, airlines added 18% more in the same quarter even as passenger growth slowed to 11% from 20-30% levels.
So what do airlines do to stanch the haemorrhage? Add levies into tickets on the pretext of rising input cost. ATF prices have risen 100% over the last 18 months. For Jet alone, that’s an additional monthly cost burden of Rs 90 crore. No doubt jet fuel prices have hurt, but it is not the only reason airlines are sloshing in red ink.
M Thiagarajan, managing director of Paramount Airways, the south-based carrier, said any attempt to adjust fares now is only pulling down passenger demand.
30/06/08 Praveena Sharma/Daily News & Analysis

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Categories: Indian Aviation- In General Jun 2008