Airline losses will be manageable in '09: Report

New Delhi: There's a silver lining behind every dark cloud. This holds true for the aviation sector too as the turbulence which hit it in 2008 is likely to clear up a little this year. But that's likely only in the third quarter of this year, says Policy Outlook 2009, a report by the Centre for Asia Pacific Aviation (CAPA). The demand for the first half of 2009-10 will be weak, but improve later. Though there will be airline losses this year too, the magnitude will be manageable. Over the last three to four years, the industry has lost over $3 billion.
"CAPA, in fact, had projected in 2005 that the period until 2010 would be largely profitless, and the true potential of the sector would only emerge after that,'' says Kapil Kaul, CEO Indian Subcontinent & Middle East. "So 2009 will dictate who emerges a winner.''
If oil prices stay below $50, airline losses will be significantly reduced, he says. "In fact, air traffic for 2009-10 could return to 2007-08 levels.''
But Sushi Shyamal, associate director, Ernst & Young, says that hoping for low crude prices may not be the best bet for Indian aviation. "Though it's highly unlikely that crude will reach the high levels that were ruling sometime back, in the foreseeable future, they are expected to stabilize at price levels higher than the current prices. The key to profitability for airlines would hinge on streamlining operations and optimizing routes.'' Plus, if additional sops are given to this sector in terms of FDI relaxations, fiscal bailout and a lower interest rate regime, it could help the sector to recover.
"International traffic, especially to West and South Asia, remains strong. Premium traffic, however, has been declining and may seriously impact Indian carriers such as Jet Airways, Kingfisher and Air India.'' Traffic to Europe and North America is likely to remain weak due to the economic slowdown there and excess capacity on UK/Europe routes. Inbound traffic too has been hit due to the Mumbai's terror attacks. But all is not doom and gloom, it predicts. Much depends on the economy, fuel prices and political/security stability.
The report says as per the long standing proposal, if the foreign airlines are permitted to invest up to 25% in domestic airlines, it would give them a lifeline.
15/01/09 Shobha John/Times of India

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Categories: Indian Aviation- In General Jan 2009