Wednesday, September 05, 2018

What ails India's airlines?

If you take a flight nowadays you will likely notice that most planes are full, airports are so crowded that security can take quite a while, with first-time flyers travelling in numbers. And the average Airbus A320 operating for the low-cost carriers genuinely feels like an ‘Air Bus’. Yet, a cursory look at airline industry results right now have sent shivers through the spines of investors, with Jet Airways and SpiceJet declaring losses and IndiGo’s profits collapsing 97 per cent to just 28 crore, the Indian aviation sector is bleeding. Which logically makes no sense whatsoever to the average flyer today, but India’s airlines are expected to post losses of around Rs 15,000 crore this year according to a report by the Centre for Asia-Pacific Aviation (CAPA).

One crucial reason for the losses is of course the rising price of Aviation Turbine Fuel (ATF), and even if a SpiceJet Bombardier Q400 recently flew from Dehradun to Delhi on jathropa-derived biofuel, don’t expect ‘green’ fuel to make a huge dent in fuel costs for another decade or two. And with crude prices shooting up coupled with the fact that the US Dollar has strengthened against the rupee, airlines are having to pay a lot more for aircraft leases and servicing, since the entire industry runs on the greenback.

Usually when costs go up, prices usually follow, but the airlines are finding themselves forced to offer more and more seats on discount sales, with IndiGo starting yet another ‘million seats’ for Rs 999 sale recently. Airlines measure their performance on two key metrics, Costs per Average Seat Kilometer (CASK) and Revenue per Average Seat Kilometer (RASK); and while costs have gone up thanks to fuel prices, the falling rupee and rising wages, revenues have not kept pace at all. Indeed, leading airlines have actually seen yields from passengers drop according to their results. This clearly means that Indians want to fly, but they don’t want to pay more to fly.
05/09/18 Kushan Mitra/Pioneer