New Delhi: Domestic airlines scrapped more than 2,000 weekly flights in July, nearly one-fifth the number they operate, stepping up efforts to rein in losses stemming from record-high jet fuel prices and shrinking passenger numbers.
Declining passenger demand this year—the fallout of increased air fares—has forced airlines to prune capacity. As airlines chased market share at the expense of profits, the industry grew by nearly 33% in 2007 and 41% the year before.
The first half of this year saw modest 7.5% growth in the number of passengers from the year-ago period. Demand in June, the last month for which data has been released, shrank by 3.8% for the first time in four years.
From 10,922 domestic departures per week approved in March for the summer months this year, according to data compiled by the civil aviation ministry, airlines reduced flights to 8,778—or 2,144 cancellations—in July.
Flight rights are granted every season by the aviation regulator, the Directorate General of Civil Aviation, or DGCA. The summer schedule for flights starts from the last Sunday of March every year and runs till the last Saturday of October; the winter schedule is in place by the last Sunday of October and runs till the last Saturday of March.
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The reduction in the number of flights will help airlines reduce over-supply in the market, estimated at some 25%, and fly a fewer number of near-empty flights.
The aviation ministry data, reviewed by Mint, shows that it is the smaller airline groups that made most of the flight cuts.
CLIPPED WINGS (Graphic)
The three main airlines groups—State-owned National Aviation Co. of India Ltd, which runs Air India; Jet Airways (India) Ltd and its low-fare unit JetLite; Kingfisher Airlines Ltd that is merging with low-fare carrier Simplifly Deccan—have cut 909 weekly flights. These firms controlled 72.6% of the market measured by passengers flown.
Jet Airways said it had seen the passenger slowdown coming and had planned for it.
“Every airline is looking how to reduce capacity and taking out the most loss-making flights. But we are fortunate that we had already decided last year to expand very cautiously. So, our fleet size is stable or some leases are expiring,” said Wolfgang Prock-Schauer, chief executive officer at Jet Airways.
Maintenance checks and paint jobs are being done ahead of schedule on grounded planes to ready them for the coming peak season, Prock-Schauer added. Demand for airline passenger seats expands from October to January, peaking around the Diwali and Christmas holiday seasons.
Saroj K. Datta, executive director at Jet Airways, said his airline is also looking at leasing out some grounded planes to other carriers. But, he said, leasing will be the last option while the main focus would be on carrying out maintenace of aircraft and looking at alternate utilization.
Smaller airlines such as SpiceJet Ltd-run SpiceJet, InterGlobe Aviation Pvt. Ltd-run IndiGo, GoAir India Pvt. Ltd-run GoAir and those with regional operations such as Paramount Airways Pvt. Ltd and MDLR Airlines Pvt. Ltd have pulled back 1,235 weekly flights from the routes they fly. These airline account for 27.4% of the passenger market.
Paramount Airways, which mainly operates in the South, has reduced 391 weekly flights. This despite the fact that the airline, projected as an all-business class carrier, has fares set higher than low cost rivals that allows it to counter rising fuel prices which can form up to 60% of an airline’s operating costs.
By virtue of using a fleet of five smaller Brazilian-made Embraer aircraft, the airline pays only 4% as fuel taxes compared with its counterparts which pay anywhere upto 30%, varying from state to state. Planes that weigh less than 40 tonnes or have not more than 80 seats, according to government rules, command lower fuel taxes.
The Chennai airline’s managing director, M. Thiagarajan, denied the airline had cancelled flights to reduce losses. The reduction, he insisted, was because the airline “had to send two of our aircraft for heavy maintenance checks one after the other”.
Low-fare carrier IndiGo feels the reduction in capacity is market driven.
“There is nothing surprising about any of this,” said Bruce Ashby, IndiGo chief executive. “It always happens when fuel prices go up and/or when capacity growth is slowed or reversed. And yes, it will continue for a while. Capacity/seats recently removed from the market will probably not come right back into the market for a while.”
The airline now flies nearly 665 weekly flights, down from 720 prior to 20 July, when it applied the new “interim schedule change”.
Reduced flight choices translate into higher airfares for passengers both on prime sectors such as Mumbai-Delhi and least serviced routes such as Delhi-Kulu.
Airfares are unlikely to be fall even if aviaition fuel prices decline marginally.
“I don’t think that will change,” said Samyukth Sridharan, chief commercial officer at the low-fare airline SpiceJet, “unless the fuel goes down substantially and the airlines go from under-recovery to over-recovery”.
And as airlines get ready for the peak air travel season and file a fresh winter flight shcedule, there won’t be a big jump in the number of flights.
“We will be a bigger airline than we were in the winter of 2007,” is how IndiGo’s Ashby puts its planned increase. “But it won’t be radically different in any way.”
P.R. Sanjai contributed to this story.