Airlines fly into better cash-flow zone

Bangalore/Mumbai: No longer are they as squeezed for cash as a few months back. Flying load factors and higher yields in the last two months has meant improved cash flows at airlines.
This will bring down the dependence of local carriers, which are buried under huge debt liabilities, on external borrowings for meeting their working capital needs, say experts. Though, it will be a while before they can start undertaking expansion plans.
Samyukth Sridharan, chief commercial officer (CCO) of SpiceJet Ltd, said going by the projected gross domestic product (GDP) growth of over 7%, the demand for air travel is expected to grow at 13-14% in the current year.
And since the capacity will grow at a much lower pace of 6-7%, fares are expected to remain firm for some time. This, he said, will further improve the cash flows of airlines.
Citigroup analysts Jamshed Dadabhoy and Arvind Sharma said in a report on February 15 that the overall industry’s elasticity of demand to price (and yields) is far higher today than four years ago.
However M Thaigarajan, managing director of Paramount Airways begs to differ. He said since loads and yields keep varying, the airlines should not be completely dependent on them for cash flows.
Another senior executive of a low cost airline, who did not want to be named as he is not authorised to talk to the media, said aviation turbine fuel (ATF) prices could spoil the game for the airlines this year.
Industry experts say it will take airlines another few quarters to completely wipe out the red on their balance sheet.
25/02/10 Praveena Sharma & Ramiya Bhas/Daily News & Analysis

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Categories: Indian Aviation- In General Feb 2010