Monday, June 12, 2017

Airlines: Caught in rough weather

 A year is a long time in Indian aviation. From stellar in 2015-16 to slack in 2016-17, the sector’s financial performance justifies its well-earned reputation for fickleness.

All the three listed carriers — IndiGo Airlines, SpiceJet and Jet Airways — took a knock on the bottom-line last year, national carrier Air India’s financial position deteriorated further and two fledgling regional airlines — Air Pegasus and Air Costa — shut shop.

In contrast to the 52 per cent growth in 2015-16, market leader Indigo Airlines’ profit shrank 16 per cent in 2016-17. Low-cost peer SpiceJet’s profit fell 4 per cent in 2016-17 while full-service carrier Jet Airways took the worst hit, with a 67 per cent profit crash; both these airlines had swung from loss to profit the year before.

All this turbulence is despite air traffic continuing to grow at a rapid pace. India is among the fastest growing aviation markets globally; overall domestic passenger growth was nearly 22 per cent in 2016-17, with IndiGo and SpiceJet leading the way.

The paradox of divergence in passenger growth and profit growth is primarily due to two old bugbears — high costs, especially fuel, and low airfares due to intense competition.

After plummeting to below $30 a barrel in the March 2016 quarter, crude oil steadily inched upwards in 2016-17. Aided by output cut deals among OPEC and major non-OPEC producers, crude oil crossed the $50 a barrel mark in the December 2016 quarter and inched towards $60 levels.
12/06/17 Anand Kalyanaraman/Business Line