Boeing says India’s carriers lurching towards 2008-type crisis

Despite the domestic airline sector growing despite slowdown globally, the airlines per se are not making any profit due to factors such as heavy operational costs, says aircraft maker Boeing.

“There is no doubt in saying that the Indian aviation sector is offering significant opportunities and only the surface has been scratched so far. The sector is definitely growing in India. But the growth is not profitable,” Dinesh Keskar, president of Boeing India and chairman, Ficci civil aviation committee, said.

Rising fuel costs are hitting the profits of the companies with the situation seeming closer to the one in 2008, he said. “In August 2008, fuel was costing about $6.5 a gallon and in March 2012 it is at $5.04. The situation was different in 2009 and 2010. We are inching dangerously closer to the level in 2008, when things turned bad for the sector. Indian domestic fuel prices are 50% higher than the world average and the exchange-rate fluctuation is also adding to the problem,” Keskar said.

A 15% hike in airfares is an immediate step that would help handle the crisis, he said. However, according to him, the hike in fares would also have its own implications, including a direct impact on the load factors. Airlines are already witnessing an increase in the gap between the market fares and the break-even fares. This too is being seen as a repetition of what happened in 2008.

However, the silver lining is in the form of the promise the market holds. While the US and European markets are already on a downward spiral, the Asia Pacific and the Middle East markets are being seen as the growth centres for the aviation.

“It is estimated that in the next 20 years about 33,500 aircraft are required with a value of about $4 trillion. India will need about 1,320 aircraft worth about $4 billion. The growth in passenger traffic is already indicating a positive trend. While there was a traffic of about 50 million passengers in 2010, it increased to over 60 million in 2011. For the current year, it would be at about 69 million,” Keskar said.

Boeing is all set to induct its much-hyped Boeing 787 - Dreamliner - into the Air India fleet. While the state-owned carrier had ordered for about 27 Dreamliners, eight of them are expected to be delivered in phases. “We will deliver 787s to Air India in the first quarter (of next year),” he said.

The aircraft maker has flown in a brand-new Dreamliner for display at the India Aviation show at Hyderabad.

The “game-changer” aircraft is believed to be a part of Air India’s turnaround strategy since it results in 10% lower operations cost, 30% lower maintenance cost and 20% less fuel consumption. “Air India will also benefit from the Dreamliner since it can fly it in new routes as it has 256 seats,” he said.