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Airlines to fly into another year of turbulance

Friday, 27 June 2014 - 6:55am IST | Agency: dna

Indian aviation companies are headed for another turbulent and a loss-making year as rising fuel costs and increasing competition is expected to hit profitability for most airlines.

As per the estimates by the global aviation consultancy firm - Center of Asia Pacific of Aviation (CAPA), the industry could see accumulated losses in the range of $1.3-1.4 billion (Rs 7,800-8,400 crore) in the financial year 2014-15, down from $1.7 billion (Rs 10,200 crore) in the last financial year.

The current financial year is expected to remain difficult for the airline industry, with global oil prices unlikely to soften and the entry of newer airlines likely to intensify competition.

According to Amrit Pandurangi, senior director, Deloitte in India, "Even though the government is talking about providing support to the industry, oil prices are beyond the control of the government and we don't expect any change in the taxation given the economic situation. Hence, we expect the margins to remain under pressure for the airline."

Despite continuing losses and the challenging cost structure, the industry is also gearing up for intense competition following the entry of two new carriers – AirAsia India and Tata-Singapore Airlines. With competition heating up, existing carriers will increase focus on the international routes for adding additional capacities.

As per the report released by CAPA, the airlines have lost almost Rs 63,700 crore in the last seven years.

As per the industry estimates, the year will see a capacity addition of around 8-10%, higher than the traffic growth projection of 6-8% in India in FY15. The traffic grew 5.2% by the end of FY14 in India, while international traffic grew 8.3%. Experts expect the international traffic to strengthen to 10% in the current financial year.

"Most of this (capacity) growth is expected to be generated by AirAsia India, Tata?SIA, and possibly Air Costa, all of which combined could deploy up to 18?20 aircraft in the market by the end of FY2015. Much is dependent upon AirAsia's rate of expansion which is currently uncertain," said the CAPA report.

Given the slower market and increasing financial burden, experts expect the airlines to defer capacity expansion by few months to a year. "Jet Airways is likely to freeze its domestic fleet expansion this year and most of the seven 737s that it has scheduled for delivery will be deployed on international routes," said the CAPA report.

CAPA further said that IndiGo is likely to float an initial public offering (IPO) in the third quarter of 2014-15. "If it proceeds it is expected to be the largest ever aviation IPO in India. CAPA estimates that IndiGo could raise $350?400 million from the flotation," it said.

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