New Delhi / Mumbai: Runaway airfares because of record aviation fuel prices that have more than tripled in three years are turning away passengers and threatens to tip airlines into steep losses that may lead to shuttered operations and distress sales in as little as a year, say industry insiders and analysts, unless there is a correction in oil prices and taxes levied on fuel.
Airlines in India, most of them offering budget travel and less than four years old, are already making losses after they started off by competing for market share by offering airfares as low as Re1, excluding taxes. They had hoped their operations would turn profitable once the passenger market expanded but rising aviation fuel prices, which now constitute 60% of the operating cost of an airline up from 40% in early 2007, have eroded those ambitions.
When India’s largest airline group by passengers carried, Jet Airways (India) Ltd, announces its fiscal 2008 results later this week, some of those concerns may be reinforced.
The Mumbai-based airline, which had been booking profits since fiscal 2004 despite the advent of low-fare carriers, may report losses for the first time on its domestic operations in the March quarter, said a person familiar with the development but did not want to be identified because results for the period are not final. Jet Airways chief executive Wolfgang Prock-Schaeur did not return calls for comment. Jet, which in an ambitious drive started international operations, has blamed this division for its Rs91.12 crore losses in the December quarter.
Growth clocked in the past few years could be jeopardized if taxes on ATF are not reduced
Another industry executive said operating losses in the airline industry could double this fiscal year, from an estimated $1 billion (Rs4,270 crore) in fiscal 2008, only on account of aviation fuel prices. “The losses are going to (be) about an additional $850 million to $1billion (in fiscal 2009), if nothing is going to happen to oil prices,” said a senior executive with a private airline, requesting anonymity.
The fresh losses in fiscal 2009, he said, were calculated at a base price of $125 per barrel against $80 per barrel last year. This could worsen in the coming months with so-called front month futures (the price for delivery in the nearest month) for oil scaling $130 a barrel. At New Delhi, aviation turbine fuel (ATF) was selling at Rs53,309 a kilo litre in April, nearly 50% more than the Rs39,767 in October. The fuel sold at Rs17,067 a kilo litre in fiscal 2005. The price of ATF is widely expected to be raised again this month.