Mumbai: India’s loss-making domestic airlines would have to ground at least 25 planes in the next 12 months as fewer passengers opt to fly, three airline executives said.
Overall, the carriers would be forced to reduce the number of seats by 30% to arrest losses, either by cancelling flights or reducing frequencies, they added.
Ground reality: Analysts say that a cut in capacity is inevitable for airlines to return to profits, though it would result in higher fares. Vijayanand Gupta / Hindustan Times
At present, India’s airlines have about 400 passenger planes flying. Even after airlines tried to attract passengers with steep discounts, passenger traffic fell nearly 17% in the peak October-January season, according to data released on Monday by the ministry of civil aviation.
In the December quarter, carriers trimmed capacity by 8% by grounding some planes. Many carriers have stopped flying on loss-making routes and lowered frequency in sectors with low demand.
“Airlines are witnessing turbulent times as the economic slowdown is set to spoil the travel plans of corporate India,” said one of the three senior executives mentioned earlier. “As air passenger growth continue(s) to fall, we have no other way but to cut the capacity. You will see at least 30% reduction in the capacity. Airlines (will) either cancel flights or club two flights.”
As of now, airlines are looking to freeze or slow expansion, said another senior executive with a full-service airline. “Even with no fresh capacity induction, we will be forced to cut many flights.” This person, as well as the other executives quoted in the story, didn’t want to be identified to shield their airlines.
Already, except state-owned National Aviation Co. of India Ltd (Nacil), which runs Air India, all other airlines have frozen or are slowing expansion. Nacil will take delivery of nine or 10 planes for its domestic operations, but will not renew the leases that are expiring this year, a senior Nacil executive said.
Ankur Bhatia, executive director of Bird Group, a technology provider for the travel and tourism industry, said airlines are cancelling flights as there are fewer passengers to fill the seats on a plane. He said passenger traffic in February would increase or decrease only marginally, according to the firm’s projections.
UB Group, the promoter of Kingfisher Airlines Ltd, in an investor presentation in late January, said the airline has reduced 21% of its flights, resulting in nine surplus planes. The airline is returning these aircraft and is in talks with Toulouse-based Airbus SAS and France’s ATR to defer deliveries of more planes, it added.
A senior Kingfisher Airlines executive said his airline has already returned four Airbus A320 planes, which were primarily used on domestic routes. It has also deferred taking deliveries of 32 planes from Airbus, he said.
Jet Airways (India) Ltd, India’s largest private airline by passengers, has said in a January investor presentation that it expects domestic capacity to be flat or negative for the next few quarters.
“We have also implemented a 12-15% reduction in the domestic capacity, whereby, we have four Boeing 737 which we have withdrawn from service. These aircraft will be returned to the lessors between January and May 2009,” said Wolfgang Prock-Schauer, chief executive of Jet Airways.
This year, the airline may add only some ATR planes, which are small aircraft capable of carrying up to 70 passengers.
Many analysts Mint spoke with said a cut in capacity is inevitable for airlines to return to profits, though it would result in higher fares.
Kapil Kaul, India chief of airline consultancy Centre for Asia Pacific Aviation, said the country’s carriers need a capacity correction in 2009.
Indian carriers expanded their fleet sharply between 2006 and 2008 riding a boom in domestic aviation, and had planned to induct an additional 500 planes in 2009 and 2010.
“Right-sizing is much needed...but it is not that easy to cut the capacity,” Kaul said.
Airlines incur high expenses in grounding aircraft or returning planes to lessors before a contract ends, in rent or penalties.
“I foresee a consolidation in the next 6-9 months that will address the issue of oversupply of capacity. To add, 25 to 30 planes will be going out of the system,” Kaul added.