BackIndian airlines’ losses to increase in 2011 as crude oil prices rise
Indian airlines’ losses to increase in 2011 as crude oil prices rise
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Singapore: Indian carriers may lose more money this year than they did in 2010 because of higher oil prices and excess capacity, the International Air Transport Association (Iata) forecast on Monday, when it slashed the worldwide profit forecast for the airline industry by 54% for 2011.
Iata downgraded the estimate to $4 billion (Rs 17,880 crore) profit from $8.6 billion projected in March.
The move is directly related to the revision in fuel prices. The average oil price for 2011 is now expected to be $110 per barrel, a 15% increase over the previous forecast of $96 per barrel, according to Iata.
India’s airlines, which together have a fleet of around 425 aircraft, are likely to report a significant loss for the year 2011 as a whole. Fuel constitutes 30-50% of an airline’s cost in India; internationally, it can be as low as 13%.
“This year is going to be harder than last year. Fuel will add an additional 5% to the cost internationally and probably more for Indian carriers," Brian Pearce, Iata’s chief economist, said at the venue of the annual general meeting of the grouping’s member airlines in Singapore on Monday.
“We are already seeing price-sensitive passengers being discouraged from flying. Having said that, India’s economy is growing very strong, which will continue to lead growth. But profitable growth will be a challenge"
Pearce did not give a number to the estimated loss of Indian airlines.
Indian airlines posted a loss of $2 billion in fiscal 2008 and 2009, forcing them to delay expansion plans that they have only now gradually resumed. In fiscal 2010, India’s top three airlines—Jet Airways (India) Ltd, Kingfisher Airlines Ltd and Air India—had a combined loss of at least $1.5 billion, according to industry estimates.
Of the three airlines listed on the stock exchanges, Jet Airways and Kingfisher have announced losses for 2010-11 while SpiceJet Ltd has made a small profit. IndiGo and GoAir are privately held. Air India’s losses are still being audited.
The Indian airline industry has not seen a profit in the past five years, Pearce noted. China’s airlines made profits “for at least the last two years because capacity addition there has been much more controlled", he added. Pearce said China’s airlines have posted profits for the three months ended March and will likely be profitable this year, too. Iata’s estimate of a $6 billion profit for the global airline business is based on an average fuel price of $110 a barrel.
In April, consulting firm Centre for Asia Pacific Aviation’s 2011-12 outlook predicted a combined profit of $350-400 million for India’s private airlines and a $1-1.25 billion loss for state-owned Air India, assuming an average oil price of $85-95 per barrel.
Airlines in the Asia-Pacific region are expected to be among the most profitable of all regions worldwide, with India and China expected to see strong growth in passenger numbers.
“Airlines in this region are more exposed than others to cargo markets and fuel price fluctuations. Asia-Pacific airlines carry 40% of all air freight volumes, while low labour costs and relatively low hedging means fuel accounts for a bigger proportion of total costs. In addition, the Japanese earthquake and tsunami are expected to dent the region’s prospects for the remainder of the year," Iata said in a statement.
“However, this will be more than offset by robust growth in both China and India. The continued dynamism of these economies means that Asia Pacific is the only region where demand increases (6.4%) are expected to outpace capacity growth (5.9%)," it said.
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