Airlines’ problems: consolidation can help

Mumbai: Facing the heat with spiralling fuel prices, the intensively competitive Indian aviation industry now has to contend with negative growth in domestic air traffic as well.
For the first time in three years, early July has seen domestic air traffic decline by four per cent over the year-ago period, attributed largely to higher ticket pricing-led lower passenger load factors (PLF) and a capacity cut by airlines during the last few weeks.
Average ticket prices have gone up by around 100 per cent over a year which saw PLF dip to around 60 per cent from 70-75 per cent last year. The past two months have also seen the industry cutting about 10 per cent, about 160 daily flights, of their total domestic capacity.
The rise in aviation turbine fuel (ATF) price translates into a substantial loss for airline companies and average ATF prices have risen from Rs. 43 a litre in the last fiscal to Rs. 61.70 a litre in May this year. A Crisil Research report says that fuel cost as a percentage of total operating cost has risen by 300-600 basis points. Though airlines have countered this by gradually increasing fuel surcharge, they continue to bleed.
“The incessant increase in the price of ATF and the consequent increase in ticket prices has led to a reduction in growth of passenger traffic, thereby leading to a drop in PLF,” say the report adding that at current ticket prices even if the airlines operate at 100 per cent load factor, low-cost carriers will not breakeven and full service carriers will just about breakeven at the operating level, however, assuming a 100 per cent load factor is unrealistic. “In July, we are seeing the first signs of negative growth in domestic travel and there has also been a 10-15 per cent cancellation or withdrawal of domestic flights by several airlines,” C. V. Prasad, Chairman, Travel Agents Association of India (TAAI), told The Hindu. The airlines’ woes do not end with high fuel prices as they may have to re-introduce cancelled flights at some stage.
13/07/08 Ramnath Subbu/The Hindu

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Categories: Indian Aviation- In General Jul 2008