Mumbai: India’s airlines are expected to post aggregate losses of around $2 billion (Rs9,260 crore) in 2009-10, largely on account of excess capacity and high fuel prices, but most of them are looking forward to a better, even profitable, 2010-11 on the back of their own cost-cutting measures and an increase in passenger traffic.
“The growth has already started coming in. If the current situation prevails, the next financial year will be good for airlines. Most importantly, the gap between demand and supply will disappear in the year,” Delhi-based low-fare carrier SpiceJet Ltd’s chief executive officer Sanjay Agarwal said in an interview. Demand could outstrip supply by 2014, he added.
That marks a significant turnaround for a sector plagued by overcapacity in 2008-09 and part of 2009-10. The aggregate loss of India’s airlines rose 44% to Rs8,557.37 crore in 2008-09 and the airlines expect to post a loss of a similar magnitude this year. Meanwhile, passenger traffic in the country, the fourth highest in the world after that in the US, China, and Japan, fell in 2008-09 on the back of high tariffs; it also fell in the first part of 2009-10.
However, most airlines have started posting better results in recent months.
Negative outlook: The aggregate loss of India’s airlines rose 44% to Rs8,557.37 crore in 2008-09 and the airlines expect to post a loss of a similar magnitude this year. Harikrishna Katragadda / Mint
On Monday, Nikos Kardassis, chief executive officer, Jet Airways (India) Ltd, the country’s largest airline, said his airline showed a 33% increase in its domestic passenger traffic in November, compared with the same period last year. The airline’s international passenger traffic has also registered a growth of 19% in November.
Even in what is typically the lean season for Indian airlines, Jet Airways managed to clock an operating profit of Rs44.24 crore for the quarter ended 30 September. However, its net loss in the quarter widened to Rs406.69 crore from Rs384.53 crore a year earlier, largely on account of a five-day pilots’ strike and lower airfares.
“The Indian aviation market is growing realistically at 4-5% currently, compared to the levels of 2007-08, which was the boom period. The issue of overcapacity has been addressed,” said Raajeev B. Batra, head of transport advisory services (aviation) at KPMG Advisory Services Pvt. Ltd.
That’s an opinion that is seconded by analysts.
“The airline sector is exhibiting strong recovery, with an increase in passenger traffic and bottoming of yields,” wrote S. Arun, senior director at global brokerage DSP Merrill Lynch, in a 5 October report. “This, along with stable oil prices, is expected to lead to (the) sector turning profitable by next year.”
“I have always been very optimistic about the Indian market. All signs are that traffic is improving but we also need to see an improvement in yields. The yield improvement will come as capacity is constrained and I am sure we will see another wave of orders (for planes) in 2011-12,” said Kiran Rao, executive vice-president, marketing and contracts, for aircraft manufacturer Airbus SAS.
Not everyone agrees with that.
Hormuz P. Mama, an expert in the aviation business who writes for leading international aviation magazines, isn’t convinced airlines have removed all their excess capacity. “Airline CEOs (chief executive officers) are always optimistic and they will expect profit every year. As long as the growth is artificial and fares do not cover the cost of operations, profitability will be a question,” he added.
An industry analyst, who did not want to be identified, pointed out a potential problem arising from Indian carriers cancelling or deferring orders for aircraft. “Most of the carriers have deferred their aircraft acquisition plans. If the revival is true and if they fly back to black, they will miss the wave of next boom.”
KPMG’s Batra, however, said airlines could always lease all the aircraft they need.
Over the past month, shares of Jet Airways have risen 19.68% and closed at Rs560.45 each on Wednesday on the Bombay Stock Exchange. Shares of Kingfisher Airlines Ltd rose 15.06% to close at Rs60.35 each, and those of SpiceJet Ltd zoomed 31.22% to close at Rs55.90 each in the same period. The exchange’s benchmark Sensex index has risen by 3.8% in the same period and ended Wednesday at 17125.22 points.