New Delhi: After a bruising year that saw domestic airlines defaulting on vendor and lease payments, carriers in India have pulled back at least one-third of the orders they had placed with plane makers for delivery this year, an analysis by Boeing Co. shows.
Commercial plane makers Boeing, Airbus SAS and Empresa Brasileira de Aeronautica SA (Embraer) expect to deliver some 57 aircraft to India this year, down from the 91 projected in mid-2008, according to research by the US plane maker reviewed by Mint.
Indian carriers are struggling to fill up seats amid overcapacity and slowing economic growth that are expected to saddle them with a collective loss of about $2 billion (Rs10,100 crore) in the fiscal year ending 31 March. In January, airlines filled just two-thirds, or 3.3 million, of their 5.06 million seats, showed the data collated by Boeing.
Also See Too Much Capacity (Graphic)
“One of the problems you hear—about the reasons for $1.5-2 billion losses in the industry—is that everybody is trying to sell (tickets) below cost. That’s not their choice because there is simply too much capacity,” said Dinesh Keskar, president of Boeing’s India unit. “And, when that happens, fares go down.”
In 2008, air passenger traffic in India fell after surging for the last six years. The airlines carried 43.3 million passengers in 2007, more than three times the 13.3 million flown in 2002. In 2008, the figure fell to 40.77 million.
Slumping passenger demand and record high prices of jet fuel prompted airlines across Asia to pull back several daily flights starting in the summer of 2008. Last year, India’s domestic airline capacity shrank by 8%. That compares with a 3.5% pull-back in Japan and an 18% addition in China.
Indian carriers also led a pack of 20 Asian carriers that significantly pared market capacity last year, according to Boeing. Between February this year and the same month of 2008, at least half of the 20 top airlines in Asia cut capacity.
India’s Kingfisher Airlines Ltd led the list of Asian carriers with a 17.1% reduction, followed by Singapore Airlines at 8.3%, Thai Airways at 7.7%, Jet Airways (India) Ltd and Japan’s All Nippon Airways Co. at 6.2% each, and National Aviation Co. of India Ltd-run Air India’s 5.3%.
Air India has a fleet of 150 aircraft, followed by Jet with 111 (some of its planes have been leased out), and Kingfisher with 76. All three have seen their losses increase sharply.
“This is probably tougher than what we saw in 9/11,” Airbus executive president, sales and marketing, Kiran Rao, said on the impact of the economic slowdown worldwide that is hurting the global travel industry. By 9/11, Rao was referring to the 11 September 2001 terror attacks in the US.
If there is a recovery in the economic situation by the end of the year, the air travel industry, which grew 5% annually in the years following 2001, could see growth picking up, Rao added.
Still, there will be several airlines in India adding planes to their fleets this year. As of July last year, there were orders placed for 68 Airbus planes, 22 Boeing aircraft and one Embraer, all scheduled for delivery this year.
By January, this numbers had shrunk to 32 orders for Airbus followed by Boeing’s 20, largely as a “result of deferrals and cancellations of orders”, as Keskar puts it. Embraer’s rose to five.
Jet Airways has deferred deliveries of one Boeing-made 777 and 737 each. Boeing’s 20 planes on order for this year do not include the 787 Dreamliner planes purchased by Air India, deliveries of which have already been stalled because of production delays.
Airbus says it has adjusted its delivery schedule. “We have hectic time schedule but I think it’s very much under control for the Indian market, especially because it (downturn) came a little earlier than the rest of the world,” said Rao, adding that his company had been “able to absorb the few cancellations that we had on the Indian market”.
Smaller airlines such as Interglobe Aviation Pvt. Ltd-run IndiGo, SpiceJet Ltd and Paramount Airways Pvt. Ltd were the only ones that increased capacity by 13%, 8% and 73%, respectively, between February 2008 and February 2009.
Both Boeing and Airbus said they don’t expect any new orders from the Indian market any time soon, but continue to maintain their India market forecast which estimates that the country’s airlines would buy up to 1,100 planes over the next 20 years.
Graphics by Sandeep Bhatnagar / Mint