The load-factor flight to profitability in aviation

Bangalore: The domestic aviation industry is on the best flight ever.
In May, all the factors impacting the bottomline of an airline were positive — seat load factor at over 85% was the highest in a decade, air travel demand was robust at 22%, comparatively capacity addition was subdued and oil price at around $74 per barrel was softer than earlier years.
There was just one thing slightly off the mark. And that was yields, which is the net revenue an airline earns on a seat. Airline executives and industry experts say yields continued to grow at much slower pace than demand.
One of the reasons for this was local carriers do not want to disturb the high seat load factor for better yields and take a further hit on their bottomline.
“We would rather go for higher seat load factor and optimise aircraft and resource utilisation for better financials than chase higher yields. This makes better commercial sense,” said a senior airline executive.
He said the current phase of smooth flight provides a breather to the carriers to consolidate their financial position.
“It would be fair to say market fundamentals have improved but I don’t see most of us jumping to raise fares. Instead, we would rather take use this opportunity to improve our balance sheet. We are not taking any major decisions based on our performance in one or two quarters,” said the executive.
His view is that airlines will not tinker with fares for the next 3 to 4 months. “If at all, we do revise fares, it would be only after mid-September, when the peak season sets in. Then, there is a scope to hike current yields by 10-15% if the today’s growth rate of 18-25% is sustained,” he said.
At present, the average industry yield is around Rs 4,200 per passenger. A 10-15% increase would take it to Rs 4,600-5,000.
17/06/10 Praveena Sharma/Daily News & Analysis

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Categories: Indian Aviation- In General Jun 2010