India’s airlines face fare drop, profit delay on foreign routes

Mumbai: An increase in the number of flights to and from India by global airlines is resulting in a drastic drop in international air ticket prices, which, in turn, will potentially delay break-even for the overseas operations of domestic carriers, say airline executives and sector experts.
Airline operators such as Germany’s Deutsche Lufthansa AG, Singapore Airlines Ltd, Cathay Pacific Airways Ltd and British Airways Plc. are increasing flights to and from India as also reducing fares in an attempt to capture share in a rapidly growing market.
India has more than tripled its seat allocation on international routes over the past five years by liberalizing air services agreements with other countries. But with only three local airlines flying abroad, much of this new capacity has remained unused.
In addition to state-owned National Aviation Co. of India Ltd, or Nacil, that runs the Air India-branded airline, domestic market leader Jet Airways India Ltd has been operating flights internationally since 2004 and has been joined last month by Kingfisher Airlines Ltd.
Operations on international routes typically take at least 18 months to become profitable.
“Between 2003 and 2007, around 800,000 seats for international travel were allotted as a result of bilateral air service agreements, which is at least a 200% increase,” said Kapil Kaul, chief executive (Indian subcontinent and Middle East) at Centre for Asia Pacific Aviation, an international aviation consulting firm. Indian carriers, he estimated, have used just 30% of their allotted capacity (of 400,000 seats), while their overseas peers are using about 70% of the seats earmarked for them.
“International airlines are dumping capacity on Indian routes,” insisted Naresh Goyal, founder and chairman of Jet Airways, the country’s largest airline by passengers carried, on the sidelines of the company’s shareholder meeting late September. “They are increasing their frequencies on almost all routes, which will affect the profitability of Indian carriers.”
10/10/08 P.R. Sanjai/Livemint

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Categories: Foreign Oct 2008, Indian Aviation- In General Oct 2008