Steep fuel cost, admin expenses add to aviation industry's woes

The first quarter of FY10 for Indian aviation industry was status quo—again painful one, thanks to the economic slowdown and change in the travel preferences of travellers. Such is the situation that Jet CEO Wolfgang Prock-Schauer had said that the airline was “running virtually on daily wages.” Declining yield, passenger load factor, and sales have ceased to be news focost or r the industry. In such situation it remains to be seen, how are the players coping with these problems and staying afloat. We at ETIG give you a picture of what are the challenges ahead for aviation companies and how well equipped these companies are to withstand those challenges.
Right now there are three daunting problems the industry is confronting with. First: overcapacity, second: not enough funds for growth and third: the declining passenger volumes. All the listed players—Jet Airways, Kingfisher Airlines and SpiceJet are confronting these issues. Jet Airways current fleet size is around 86 and if reports are to be believed the company is awaiting order of new planes that would augment its current fleet size by another 50%. Even Kingfisher Airlines is in the same situation.
In the last five years, overcapacity has been the problem of the aviation industry. And this juxtaposed with fall in traffic and high fuel cost, which constituted around 54% of net sales in the June 2008 quarter is bleeding the airline operators. Expenses on fuel declined to 30% of net sales in June quarter, but it was not enough to turn them profitable. One of the reasons being the of non-fuel expenses that remained at a high level. This has resulted in wiping out of most companies’ operating profit. Take for example Jet Airways. The company’s June 2009 quarter’s non-oil expenses were Rs1,551.9 crore, and its fuel, oil and power expenses, were Rs 637.4 crore, while its net sales were Rs 2,085 crore. After paying off the non-oil expenses, the company’s operating profit comes down to Rs 533 crore, which less than its fuel bill of roughly Rs 637 crore.
14/09/09 Rajesh Naidu/Economic Times

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Categories: Indian Aviation- In General Sep 2009