Airline costs halve in a year, but that's only half the story

Bangalore/Mumbai: Last year's cripplingly high operational costs of airlines have flown to very low altitudes today. If you go by an airline chief's estimate, the cost of running an airline has fallen by over 50%.
"..It would have come down more if the rupee had not depreciated against the US dollar and escalated lease rentals (of planes) and aircraft maintenance. These expenses are denominated in dollar," he said.
One can observe this trend in the full service carrier (FSC) Jet Airways' cost per available seat kilometre (CASK) in the December quarter, compared with the same period last year.
CASK at the Naresh Goyal-owned airline is down 2.3% in the third quarter of this year to Rs 3.28 per ASK as against Rs 3.36 per ASK last year.
A major contributor to the dramatic plunge in operational costs is the softening of aviation turbine fuel (ATF) prices. Since August last year, they have slipped by around 60%.
"When the crude oil prices had peaked at $147 per barrel, fuel would constitute more than 50% of the cost. At today's price of $38 per barrel, it has come down to 25-35% of our costs," an executive at a budget airline said.
It's not just easing fuel prices. Personnel costs have also shrunk considerably, what with the market flooded with commercial pilot license (CPL) holders, cabin crew staff and flight commanders.
According to an industry expert, cabin crew salaries, on an average, have fallen by 30-40%, while co-pilot salaries are down by more than 50%. Remuneration for flight captains has dropped 25%.
"There is scope for further reduction in personnel costs by carriers," the expert said.
Recently, Kingfisher Airlines, also an FSC, cut salaries of its flight captains from Rs 4.5 lakh per month to Rs 3.5 per month. Despite the Rs 1 lakh snip, industry observers say it is still higher than the 2004-05 level of Rs 2.8 lakh per month.
An aviation analyst with a foreign equity research firm, who did not want to be named, estimates the net cost savings for airlines from decline in fuel price could be close to 35-40%.
He said improved airport infrastructure such as a new runway at Mumbai and Delhi airports and more efficient and technically advanced airport systems have also eased operating costs marginally.
Ankur Bhatia, executive director of Amedeus, said even though operational costs have sunk significantly, airlines still aren't breaking even as fares are still low.
23/02/09 Praveena Sharma & Archana Shukla/Daily News & Analysis

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Categories: Indian Aviation- In General Feb 2009