Fare cuts to jack up airlines' losses

The 25-30 per cent cut in airfares by Indian carriers may negate the advantages of the 33 per cent cut in jet fuel costs, thus increasing their operating losses.
When aviation turbine fuel (ATF) prices were at their peak in September, Indian carriers were losing as much as Rs 10 crore a day. The cuts in ATF price had brought these down to minimal levels. But most of these gains, analysts said, will now be lost with the steep airfare cuts announced in the last few days.
A report put out by brokerage house CLSA on Jet Airways said that the fall in ATF prices had brought down the load factors (flight occupancy) required for it to break even from 78 per cent to 63 per cent. And most airlines have load factors between of around 60 per cent at present. However, the airfare cuts have raised the breakeven load factors back to 70 per cent, experts said. The initial response to the airfare cuts looks positive with travel portals reporting huge traffic, but it remains to be seen if the surge will be maintained for long.
The airlines, on their part, are banking on the lower airfares to create a surge in traffic, which will help them achieve the required load actor. This might be tough to achieve as monthly domestic air traffic is estimated to come down from 3.9 million in January 2008 to 3 million next month.
01/01/09 Anirban Chowdhury/Business Standard

To Read the News in full at Source, Click the Headline

Categories: Indian Aviation- In General Jan 2009