India’s airlines face fare drop, profit delay on foreign routes

India’s airlines face fare drop, profit delay on foreign routes
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First Published: Fri, Oct 10 2008. 12 30 AM IST
Updated: Fri, Oct 10 2008. 12 30 AM IST
Mumbai: An increase in the number of flights to and from India by global airlines is resulting in a drastic drop in international air ticket prices, which, in turn, will potentially delay break-even for the overseas operations of domestic carriers, say airline executives and sector experts.
(Click below to listen to staff writer P. R. Sanjai in conversation to Rahul Sharma)
Airline operators such as Germany’s Deutsche Lufthansa AG, Singapore Airlines Ltd, Cathay Pacific Airways Ltd and British Airways Plc. are increasing flights to and from India as also reducing fares in an attempt to capture share in a rapidly growing market.
India has more than tripled its seat allocation on international routes over the past five years by liberalizing air services agreements with other countries. But with only three local airlines flying abroad, much of this new capacity has remained unused.
In addition to state-owned National Aviation Co. of India Ltd, or Nacil, that runs the Air India-branded airline, domestic market leader Jet Airways India Ltd has been operating flights internationally since 2004 and has been joined last month by Kingfisher Airlines Ltd.
Operations on international routes typically take at least 18 months to become profitable.
“Between 2003 and 2007, around 800,000 seats for international travel were allotted as a result of bilateral air service agreements, which is at least a 200% increase,” said Kapil Kaul, chief executive (Indian subcontinent and Middle East) at Centre for Asia Pacific Aviation, an international aviation consulting firm. Indian carriers, he estimated, have used just 30% of their allotted capacity (of 400,000 seats), while their overseas peers are using about 70% of the seats earmarked for them.
“International airlines are dumping capacity on Indian routes,” insisted Naresh Goyal, founder and chairman of Jet Airways, the country’s largest airline by passengers carried, on the sidelines of the company’s shareholder meeting late September. “They are increasing their frequencies on almost all routes, which will affect the profitability of Indian carriers.”
Most of the capacity induction by international airlines is on the US, UK and West Asian routes, said another Jet Airways executive, who didn’t want to be named.
Local airlines are facing a combined loss of $2 billion (about Rs9,685 crore) in fiscal 2009 because of high jet fuel costs. Nacil alone is expected to report losses of Rs3,000 crore.
Following a slowdown in the global aviation market, Kingfisher Airlines is re-evaluating expansion plans of its international operations. Hitesh Patel, the carrier’s executive vice-president, declined comment. Kingfisher is the second-ranked Indian carrier by passengers on domestic routes.
Rakesh Raicar, Cathay Pacific’s marketing and sales manager (India, Nepal, Bangladesh and Bhutan), agreed a situation of overcapacity was emerging in the local market, though his airline managed to be profitable on Indian operations through its hub in Hong Kong.
“It’s (overcapacity) good for passengers as the fares will drop. For instance, the India-Hong Kong route has witnessed a 20% drop (in airfares) in 2007-08,” Raicar said.
Cathay Pacific had started four flights a week from Chennai to Hong Kong in June, adding to its twice-daily service from Delhi to Hong Kong and 10 flights a week from Mumbai to Hong Kong. From Mumbai, Cathay Pacific also flies seven flights a week to Dubai.
From 1 July, Lufthansa had introduced six non-stop flights a week between Pune and Frankfurt, operated by an Airbus A319 offering 48 seats in an all-business class configuration. “We have almost quadrupled our flights to India since 2001, when we operated 15 flights per week to three destinations,” said Karl-Rudolf Rupprecht, a senior vice-president of hub management, at the Pune launch. Lufthansa operates 55 India flights a week.
British Airways plans five London-Hyderabad flights a week from 7 December in addition to its 43 weekly flights from London Heathrow to five Indian cities—Delhi, Mumbai, Bangalore, Chennai and Kolkata.
Singapore Airlines, which has recently added flights from Delhi, is looking at enhancing connectivity to Bangalore, while others such as Emirates, Etihad Airways and Qatar Airways too are examining expansion to more Indian airports.
Qatar, for instance, is planning to offer round-trip, or return, fares of Rs43,619 on the New York-Mumbai route via its hub in Doha, cheaper than the Rs50,000 charged by most other airlines (including Qatar earlier). But this offer is for those who complete a round trip within two weeks, while other airlines have a validitiy running up to a year.
Naveen Chawla, Qatar’s regional manager for India, said the airline plans to strengthen Doha as a hub to connect New York from 26 October and is offering this promotional fare to attract more traffic from India to the US.
British Airways too has announced a fare of Rs9,990 (excluding taxes, other fees and surcharges that add up to around Rs9,700) to London from India, while the average fare on this routes on other airlines is about Rs18,000 without taxes and other levies.
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First Published: Fri, Oct 10 2008. 12 30 AM IST