Mumbai: Private airlines in India may finally get some respite with their yields, or the profit earned on every ticket sold, increasing by 10-15% ahead of the traditionally weak second financial quarter.

According to Kotak Securities Ltd, yields for private airlines so far in the April-June quarter have risen 13% from the average level of the fourth quarter of fiscal 2012.

Key hurdle: Falling rupee remains the only impediment for private airlines in returning to profitability. By Vijayanand Gupta/Hindustan Times

India’s airlines had a difficult fiscal 2012 with fuel prices shooting up, forcing airfares to go higher and passenger traffic to slow. Besides, national flag carrier Air India Ltd’s pilots have been on a strike for longer than a month now and Kingfisher is struggling to run its operations.

But as passenger traffic from Kingfisher and Air India got diverted to other private airlines, and as oil marketing companies cut aviation fuel prices by 5% last week, the steepest reduction since February 2010, private airlines have begun seeing their yields rise, particularly as airfares haven’t been lowered.

Economy class airfares have increased by 40% in the past six months, and business class fares have shot up by 20%.

“The return business class fare for a morning Mumbai-Delhi flight of Jet Airways (India) Ltd for Monday is 84,740 a ticket, 20% up as compared with the prices six months back," said Regi Philip, who runs Cosmos Agencies, a Mumbai-based travel agency. “There were many options for business class passengers six months ago. Now, there are limited choices. The average economy fare for a Mumbai-Delhi flight is 8,500 a ticket against 6,000 six months back."

These rates are for booking a ticket two days prior to flying.

The sharply depreciating rupee remains the only impediment for private airlines in returning to profitability, Kotak said in its report. “Any appreciation of the rupee can provide the next leg of outperformance for the sector. In our view, yield environment should remain strong, given outlook for flattish (year-on-year) industry capacity in FY2013," it said.

Kotak also flagged the likelihood of a further capacity reduction by Kingfisher Airlines in the second fiscal quarter.

Kingfisher Airlines has been forced to curtail flights from the 374-a-day that it operated in September 2011 with a fleet of at least 60 planes to 120 flights with 20 planes as it struggles under heavy debt and accumulated losses.

“Normally, the second quarter is the weakest for airlines, when PLFs (passenger load factors) and hence yields, are low and cash losses peak. In our opinion, further cash losses and lack of working capital support from banks can lead to more (smaller than before) capacity cuts by Kingfisher Airlines. As of April 2012, Kingfisher accounted for 6% of industry capacity," Kotak said.

A Kingfisher Airlines spokesperson declined to comment.

Kotak added that according to its calculations, an 18% incremental revenue is required for the industry to break even at the profit before tax (PBT) level in the first quarter, assuming business parameters remain the same as in the fourth quarter of fiscal 2012.

With an estimated 13% improvement in yields, Jet Airways will move closer to a breakeven at PBT level and the situation could be similar for other airlines, Kotak added.

A Jet Airways executive, requesting anonymity, confirmed the airline’s yields have risen by 10-15% but added that sustaining this will largely depend on capacity induction in the ongoing quarter.

The executive, too, said any depreciation in the rupee can spoil the improving situation even if all the other parameters remain the same.

India Infoline Ltd in a 4 June report suggested a similar trend. It said Jet Airways will turn profitable aided by multiple factors including high growth driven by market share gains, better pricing due to a favourable demand-supply scenario, and, most importantly, falling jet fuel costs.

Analysts offered similar projections for another listed airline, SpiceJet Ltd. Sharan Lillaney, analyst at domestic brokerage Angel Broking Ltd in a 6 June report said SpiceJet will turn profitable in fiscal 2013.

“Load factors have also been improving for all airlines post Kingfisher Airlines’ capacity reduction. We expect SpiceJet to report 80% plus load factor in first quarter FY 2013 and report profit in the same quarter," Lillaney said.

“With the company’s expected fuel import to start from July 2012, we expect its profit margin to further improve from the first quarter FY2013."

Neil Raymond Mills, chief executive at SpiceJet, declined to give any profit projections, only saying “the environment continues to be challenging."

Not everyone agrees the situation will turn rosy for the aviation sector.

India’s airlines are expected to post a combined loss of $1.3-1.4 billion in the year to 31 March, consulting firm Centre for Asia Pacific Aviation (Capa) estimated in its India outlook 2012-13 report in May.

The Capa India mid-year outlook for 2011-12, released in June 2011, had forecast a combined industry loss of $2.5 billion based on an exchange rate of 45 to the dollar.

The actual Indian rupee losses for the year are in line with the Capa forecast.

A 24 May report by JP Morgan India Pvt. Ltd’s brokerage division, authored by Princy Singh and Dinesh S. Harchandani, said despite the improvements in load factors and yields, macro factors such as oil, currency and the slowing economy remain challenging.

“While domestic airline seat capacity has declined, we believe the slowing economy poses a challenge to sustaining double digit traffic growth. Passenger traffic has slowed to 7-8% levels from mid to high teen growth about a year back," the report said.