New Delhi/Mumbai: India’s air carriers, who were battered by shrinking traffic and high fuel costs in the past two years, are now looking forward to an upswing in business, helped by the rebounding economy and events later this year, analysts say.
The upcoming festival season, the Commonwealth Games that India is hosting in October in New Delhi, and tourism will drive up air traffic as never before in the December-quarter, said Sharan Lillaney, an analyst with Mumbai-based Angel Broking, who expects July-Sept sales to be flat or marginally weaker than April-June because of rains.
“Indian aviation is entering a long-term and sustainable profitability phase,” said Kapil Kaul, chief executive Indian subcontinent and Middle East, Centre for Asia Pacific Aviation (Capa), an aviation consulting firm.
Capa, in its mid-year review issued last month, said India’s private airlines together could now post a higher than the earlier estimated profit of $250-300 million in 2010-11, although state-run Air India may post losses of $650-700 million.
A spike in fuel prices and a global downturn that resulted in lower travel spends had battered airlines globally over the past two years. The Indian aviation industry incurred a loss of about $1.75 billion in 2009/10, according to Capa.
Fuel costs, which comprise about 40% of an airline’s operating cost, have stabilised and analysts don’t expect it to shoot up anytime soon, bringing some relief to the carriers.
The games will bring in foreign tourists as well as step up domestic as well as outbound leisure travel as schools and government offices will be shut during the games, said Kaul of Capa, who sees robust traffic for an extended period between mid-Sept and mid-Feb.
Besides the Commonwealth Games, analysts are also banking on India’s economy that is expected to grow at about 8.5% in 2010-11, leading to higher business travel.
Passenger traffic grew 22% between January-June this year and the seat factor for all private airlines were above 80% in May-June, with low cost carriers outperforming full-service operators, the government data show.
“The focus will now shift from increasing load factor to increasing yield,” said Rashesh Shah, an analyst with Mumbai-based brokerage ICICI Securities, who estimates the yield or the average airfare per passenger to go up by 10-15% in the second half of the fiscal because of demand-supply mismatch. India’s airlines cut Capacity by about 15 percent in the past two years, but are expected to add only 7-8% this fiscal.
“A Capacity crunch in the Oct-Dec quarter will mainly benefit full service carriers like Jet and Kingfisher who can increase business class utilisation and drive up yield premium,” said Kaul.
Business class travel is already showing some improvement. “There is a revival in demand for premium traffic. This is expected to continue over the next few quarters,” said Saroj Datta, executive director at Jet Airways.
India’s low cost carrier Spicejet and full-service carrier Jet reported a profit in the June quarter, while Kingfisher Airlines’ loss narrowed.
Unlisted IndiGo made a profit of $75-85 million in 2009-10 and GoAir will likely make profit in 2010-11, Capa estimates .
Despite the improved environment, Air India, Jet Airways and Kingfisher will take time to recover completely because of their huge debt burden, Capa said in its review, estimating a total debt for three carriers at about $13.5 billion.
Jet Airways has a debt of about Rs13, 500 crore. For Kingfisher, the debt burden of $1.5 billion, with interest charges accounting for about 20% of costs, is the greatest obstacle to its turnaround, Capa said.
Kingfisher plans to raise $200 million through a GDR issue in FY11 and is seeking to restructure its debt.