Flights of fancy: Airlines up capacity as traffic decreases

New Delhi: Airlines in the country have only themselves to blame for the Rs 10,000 crore losses that they are expected to make this fiscal. They failed to respond to the slowdown in demand and quickly reduce excess capacity.
According to the Airports Authority of India (AAI) estimates for 2008-09, even as overall traffic (domestic and international) will be down 7.2 per cent, the number of aircraft movement will go up by 0.3 per cent in the same period. In simple terms, this means the airlines have increased capacity despite the fact that the overall market has been shrinking.
“The airlines failed to respond to the falling market. While there was a cut-down in capacity by around 25 per cent in September, the airlines brought back the flights starting from January and replenished capacity in all sectors. So we have a clear case of oversupply,” said DP Singh, General Manager, Corporate Planning, AAI.
The inability to gauge the slowdown was reflected both in international and domestic airlines. Domestic air traffic in the country is estimated to plummet 12 per cent by the end of this fiscal, while the number of flights (arrivals and departures) will only come down by 1.9 per cent. For international flights, air traffic went up by 7 per cent, but, surprisingly, carriers also increased capacity by 9.9 per cent.
Industry experts say that airlines are faced with a situation wherein they need to cut down 18-20 per cent of their flights and increase prices by 15 per cent to achieve a break-even. Their current loads are hovering around 65 per cent and their break-even loads stand at above 90 per cent.
So why did airlines not cut flights despite knowing that demand was slowing down? The answer, they say, is cut-throat competition. They fear that the competition may deploy flights on the routes left unserviced by them.
“The customer looks primarily at connectivity. If he does not find an Air India flight at a convenient time, he will take another one,” said an Air India spokesperson.
The trend started around December when after cutting down flights, airlines led by SpiceJet and Kingfisher started bringing back their flights.
13/03/09 Anirban Chowdhury/Business Standard

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Categories: Indian Aviation- In General Mar 2009