Indian carriers chart strategy for lean season3 min read . Updated: 14 Sep 2011, 12:00 AM IST
Indian carriers chart strategy for lean season
New Delhi: India’s domestic carriers, struggling with mounting losses amid a fare war unleashed by Air India Ltd, met in Mumbai on Monday to decide on a strategy to shore up revenue and widen margins in a move that’s being watched by the aviation ministry.
“They want to hike base fares," said one of three airline officials with direct knowledge of the meeting and what was discussed. All of them declined to be identified because of the sensitivity of the matter.
The post-lunch meeting, which was called at short notice, was held at Mumbai’s Waterstones Club, close to the international airport.
Representatives from state-owned Air India and budget carrier IndiGo, run by InterGlobe General Aviation Pvt. Ltd, didn’t attend.
The Directorate General of Civil Aviation (DGCA), the industry regulator, said it would investigate any efforts at cartelization, but was not aware of any such activity.
“We are watching the price scene situation very closely. There is a fare-monitoring unit in DGCA," said director general Bharat Bhushan, who has been leading a campaign to root out pilots who’ve got their jobs with the help of forged documents. “So far we haven’t seen fares change."
Those who attended the meeting included Jet Airways (India) Ltd executive vice-president Anita Goyal, Kingfisher Airlines Ltd chief executive officer (CEO) Sanjay Aggarwal, SpiceJet Ltd CEO Neil Mills and GoAir CEO Giorgio De Roni.
SpiceJet’s Mills declined to offer any comment. Email and calls to the Jet Airways’ spokesperson remained unanswered.
Kingfisher’s Aggarwal and GoAir’s De Roni didn’t reply to emailed questions.
The meeting came at the start of the two-week period considered the leanest of the year with many Indians avoiding travel because of religious sentiments, according to one of the officials cited above.
“It’s going to put a lot of pressure on the October-December quarter," this official said, following the losses posted by all three listed airlines in the April-June period, traditionally considered the second best by way of profitability.
Jet Airways, along with its subsidiary JetLite, made a loss of ₹ 128.36 crore, Kingfisher ₹ 263.54 crore and SpiceJet ₹ 71.96 crore in the first quarter of this fiscal compared with profits for Jet and SpiceJet year-on-year (y-o-y).
The current quarter is expected to be worse and it won’t get much better for the full fiscal, said an analyst.
“Q2 (second quarter) is going to be a disaster," said Kapil Kaul, South Asia CEO of Centre for Asia Pacific Aviation. “There is a negative sentiment about the airline industry. And Q2 would further increase the downward bias. All the stocks will be serious underperformers. In this year, everyone will lose."
Air India has been offering cheaper tickets since January, hurting private carriers, said one of the officials cited above. Air India tickets are priced even lower than those offered by low-fare carriers as it seeks to win back 15% market share and increase its revenue.
“High competition has resulted in low air fares, resulting in cash losses, making it more difficult for already recuperating airlines," said Vijay Nara, analyst with Mumbai-based Fortune Financial Services (India) Ltd. The recent cash infusions that Air India has got from the government as part of a bailout could also mean there won’t be a quick end to its competitive fare strategy.
To be sure, the state-run carrier is in a poor financial shape, with debt amounting to about ₹ 38,000 crore on its books. Having made losses of more than ₹ 12,546 crore in the past two years, the carrier is looking for more government cash to fund operations and pay for planes.
The weakening of the rupee has increased the burden on airlines as 70% of their costs are dollar denominated, Nara said. The deepening global economic gloom will hurt the aviation industry as it’s among the most vulnerable to cuts in discretionary spending, he added.
Airline stocks have taken a beating this year. On Tuesday, Jet ended at ₹ 278.15 on BSE, down 64.67% from ₹ 787.38 last year. Kingfisher closed at ₹ 26.15, a fall of 61.57% from last year’s ₹ 68.05. SpiceJet ended at ₹ 25.45, down 66.85% from last year’s ₹ 76.85. The benchmark Sensex lost 0.21% to end at 16,467.44 points on Tuesday, down 14.2% y-o-y from 19,208.33.