Indian carriers’ losses may go up to $1.4 bn: Capa

Mumbai: India’s airlines are expected to post a combined loss of $1.3-1.4 billion (around Rs 7,150 crore-Rs 7,700 crore today) in the year to 31 March, a little more than half of last fiscal’s forecast, according to consulting firm Centre for Asia Pacific Aviation (Capa) in its India outlook 2012-13 report released on Tuesday.

In the Capa India mid-year outlook for 2011-12, released in June 2011, it had forecast a combined industry loss of $2.5 billion based on an exchange rate of Rs 45 to $1. The actual Indian rupee losses for the year are in line with the Capa forecast. However, because of the more than 20% depreciation of the rupee against the dollar since the June forecast, the loss in dollar terms is seen at approximately $2 billion.

“In the 12 months ended 31 March 2013, Air India is once again expected to be the worst performer in the industry and to report a loss of $1.3 billion. Kingfisher Airlines is projected to lose $220-260 million. However, the remaining four private carriers combined could post a modest profit of approximately $200 million,” the outlook report said.

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India’s aviation industry is expected to post massive losses this year as well. But Mint’s P.R. Sanjai says a report from consulting firm Capa also points out that many carriers are still planning big-ticket purchases.

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These estimates are based on assumptions for the whole year of an average Brent crude price of $120-125/barrel, and an exchange rate of Rs 51-52 to the dollar.

Similarly, due to the current and trade account deficits, weak capital inflows and safe-haven flows to the US dollar as a result of the European Union debt crisis, there exists the prospect that the rupee could depreciate to as low as 60 in the absence of Reserve Bank of India intervention, the report said.

Apart from other dollar-denominated costs, this will serve to further compound the impact of high oil prices, it said. “However, in our base case, we assume that the rupee remains (in the) 54-56 range for the next three to six months and appreciates by 8-10% thereafter, averaging out at 51-52. The volatility of the exchange rate is a key concern for the year ahead,” the report said.

The report comes at a time when two leading local carriers—Air India Ltd and Kingfisher Airlines Ltd—are facing financial trouble. State-run Air India has had to cancel almost all its long-haul international flights owing to a 15-day strike by a section of pilots causing more than Rs 200 crore of loss in revenue. Air India, which has debt of Rs 43,777 crore, has accumulated losses of more than Rs 20,000 crore in the last four fiscal years. Cash strapped-Kingfisher Airlines was forced to curtail its summer schedule to about 120 daily flights with 20 aircraft, compared with 374 flights with at least 60 planes in September, because of accumulated losses and a heavy debt.

In 2012-13, local carriers are expected to add approximately 24 aircraft during the year, the report said. This corresponds to the equivalent of 20 narrowbody aircraft on domestic routes, an increase in capacity growth of 7-8%.

Capa also estimates that domestic passenger traffic will grow by 8-10% in 2012-13 compared with 15.1% in the last fiscal.

It also said that Jet Airways will be the primary beneficiary of market dynamics, including the turbulence faced by Air India and Kingfisher. Air India could face a temporary shutdown due to human resource issues while Kingfisher Airlines’ revival is completely dependent on foreign airline investment being permitted, it said.

Jet Airways is expected to place a large order in 2012-13, the report said.

“Capa expects Jet Airways could place a large narrowbody order for over 100 aircraft in 2012-13 to meet both replacement and growth requirements. The airline is understood to be actively evaluating the Airbus A320neos and it is also likely to lease up to 10 A330s to support the expansion of its European route network,” it said.

Jet Airways executives were not available for comment.

pr.sanjai@livemint.com

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