Indian airline firms post profits, fly out of slowdown zone

Indian airline firms post profits, fly out of slowdown zone

Mumbai: Indian airline firms seem to have recovered from the slowdown just as suddenly as they entered the phase in 2009-10.

The country’s largest airline by passengers carried Jet Airways (India) Ltd reported an operating profit, the second largest low-fare airline SpiceJet Ltd registered its first ever net profit and Kingfisher Airlines Ltd reduced its operating losses by half.

Jet Airways shares fell 2.46% to close at Rs497.80 apiece on the Bombay Stock Exchange on Tuesday while Kingfisher Airlines’ shares also declined 3.68% to end at Rs43.20 each. SpiceJet shares also lost 1.93% to close at Rs55.85 apiece.

Airlines whose shares are not listed, including InterGlobe Aviation Pvt. Ltd (which runs IndiGo) and Paramount Airways Ltd reported net profits in 2009-10, according to executives in the respective firms, although the latter’s fleet has dwindled to just one aircraft after technical trouble and payment disputes with lessors. And the Wadia Group’s GoAirlines (India) Pvt. Ltd (that runs GoAir) made a profit at operating level, said Kaushik Khona, chief executive officer at GoAir.

Together, Indian airlines incurred losses of $2 billion (Rs9,340 crore today) in 2008-09 on the back of low passenger traffic arising from the economic slowdown, high jet fuel prices and excess capacity. That prompted low-cost airlines to rationalize their expansion plans; meanwhile, full-service carriers scrapped some flights and moved many others to their no-frills or low-fare affiliates.

The benefits of these would appear to be kicking in just as passengers return to the air, said an executive.

“Airlines are always prone to many external shocks. But by far, Indian airline industry has overcame the painful period and the future is looking better," said A.K. Ravi Nedungadi, chief financial officer at UB Group, of which Kingfisher Airlines is a part. “This is mainly because of two factors. Firstly, the industry has cut capacity from the market and secondly, passengers are coming back. Therefore, the yields per ticket is also improving."

The revival in the business could encourage airlines to revive their plans to raise funds after the first quarter of this fiscal year, said Nedungadi.

For instance, IndiGo has hired four international investment banks to help raise funds this year to finance expansion plans either through an initial public offering or the private equity route, according to the airline’s executives.

On 18 May, Mint had reported that most Indian carriers were having little luck with their fund-raising programmes.

Experts agree that Indian airlines have turned around.

“The airlines have undertaken active cost-cutting and increased the ‘no frills’ capacity in their mix. This has been further aided by increased utilization coming from a buoyant economy," said Hemant Bhattbhatt, senior director (transportation leader) at audit and consulting firm Deloitte Touche Tohmatsu India Pvt. Ltd.

The trend could continue, he added.

“The key to sustaining current profitability lies in the traffic volumes and unless there are any other difficulties, it will not be too difficult for airlines to continue with the recovery," Bhattbhatt said.

Still, the trend could change just as quickly, he said.

Concerns related to safety could wean away passengers to other competing modes, Bhattbhatt said, referring to the Mangalore air crash that resulted in the death of 158 passengers and crew, as could issues involving security and strikes by workers.

“Attempts to strengthen security could increase costs. This could thus deliver a double whammy—increased costs and decreased traffic volumes. As airlines try to strengthen their business models through cost-cutting, the spectre of strikes and labour unrest could unfold and this could come in the way of improved performance. The recent Air India strike is a case in point," Bhattbhatt said.