Global outlook up, but Indian carriers to bleed

Profits of airlines globally are shoring up after plunging in the first half of this fiscal, but the Indian carriers would continue to bleed on account of rising costs and low passenger traffic, experts said.
Airlines world over are expected to earn $4.1 billion in 2012, up by $1.1 billion from the $3 billion forecast by the travel body in June, according to International Air Transport Association’s (IATA) revised forecast on aviation sector for 2012.

“The fall in airline profits from the $8.4 billion that the industry earned in 2011 will be cushioned by improved airline performance,” it said.

According to the association, the industry’s net profit margins would be 0.6% (up from the previous forecast of 0.5%) in 2012 as against 1.4% in 2011.

However, experts said the short-term forecast for Indian airlines was still negative as increasing fuel costs, high airport taxes, rupee devaluation and high maintainence costs would dent their profitability.

SpiceJet and Jet Airways, the country’s two major airlines, reported a profitable June quarter this year on account of strong pricing power.

However, experts feel that it will be difficult to maintain similar profitability on account of increasing costs and low demand.
“There has been a fall in passenger traffic during last few months.

The cost of fuel, which comprises almost 40-45% of the overall costs for airlines, is rising. If we look at the industry, cost of almost everything is going up, which is difficult to sustain. Hence, in short term, there would be a lot of pain in the sector,” said a consultant.
“Indian airlines contribute significant to the global losses of the industry,” he said.

IATA said global profits will rise modestly to $7.5 billion next year. in 2013.