India's Airlines need help urgently

The International Air Transport Association (IATA) expects India’s aviation industry losses to exceed $1.5 billion in 2008, second only to that of
airlines in the US. It has also indicated that there are chances of failure among India’s aviation companies.
The government needs to step in or else there is a risk of the current aviation boom unravelling rather quickly. The root of the problem is the high cost structure of the industry, declining volumes, and now surplus capacity. Traffic growth is down to 7.5% in the first six months of 2008 against 33% for 2007. In fact, there has been a decline in traffic in the recent months.
As a result the large capacity build-up in expectation of fast traffic growth is now a huge burden on airlines — typical lease charge for a mid-sized aircraft is about Rs 1.5 crore a month. Some airlines have already returned leased aircraft. But this sort of capacity reduction would only reduce the rate of cash burn.
The operating cost structure of the aviation industry remains as unviable as ever. India, according to IATA, is one of the most expensive places to buy aviation fuel (ATF) — in Mumbai, it costs nearly 60% more than in Singapore. Infrastructure constraints also add to operating costs as aircraft spend too much time on the ground waiting to take-off or are in the skies a lot longer because of the incapacity to handle a large number of flights. The problem is compounded by the route dispersal policy that forces airlines to deploy a certain percentage of capacity on unviable routes.
06/10/08 Economic Times

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Categories: Indian Aviation- In General Oct 2008