Airlines will leave reddish streaks in the skies

BANGALORE: Looks like profits will elude the carriers this year also.

SpiceJet’s results for the third-quarter ended February 28, 2007, makes you feel just that, because soaring aiation turbine fuel (ATF) prices have been dragging the engines.

The budget carrier’s net loss has shot up 395.34% to Rs 21.37 crore in the third quarter of this fiscal from Rs 4.30 crore during the same period last year.

This is after SpiceJet factored in income from lease & leaseback of two aircraft.

In the September to November quarter, the no-frills airline had cut losses by 13.34% to Rs 18.51 crore from Rs 21.36 crore in the corresponding previous period.

Siddhanta Sharma, SpiceJet CEO and chairman, said the losses in the February quarter spiralled primarily because of the induction of five aircraft.

“Since October, we have added five new aircraft. This involved induction costs such as promotional fares, which has affected our overall yields during that period. But they are already looking better for April,” says Sharma.

But even as Sharma explains the reason behind the huge losses, he does not hesitate to point to a tough year ahead.

“Certainly, yields are going to be under pressure this year, if airlines do not concentrate on controlling costs. Airlines have to watch out against mounting costs or else they will see a bigger blot of red ink on their balance sheet this year” warned Sharma.

Kapil Kaul, CEO, Indian subcontinent and Middle East, Centre for Asia Pacific Aviation, agrees. 

“This year will see similar bloodletting, may be even more. We don’t see profit returning to the airline industry until the end of 2008-09.”

Analysts said keeping profits at bay are the same two issues — high jet fuel costs and intense competition.

Fuel cost (which constitute 40% of operational cost) would be a significant factor. Initial indications are that, despite some slowdown in capacity addition, this year will be as difficult as last year, if not worse,” said a sector analyst.

Since February, ATF prices have risen by about 6.37% from Rs 33,982.95 per kilolitre to Rs 36,149.04 in April (in Delhi).

Even though this will impact their yields, airlines will not pass on the impact of rise to the consumers as yet.

They will be adjusting the impact of the current hike against gains from the drop in ATF prices during October, November, December and February.

“We want to maintain a reasonably common fuel surcharge (currently at Rs 700 per ticket) through the highs and lows of ATF prices. Only if crosses a certain limited, will we think of altering the levy,” says Sharma.

These negative forecasts notwithstanding, budget carrier Air Deccan managing director Capt G R Gopinath, as always, remained positive.

“Whatever is happening today in the industry is a temporary phenomenon and will evaporate in coming years. So, instead of taking these a short term view, we should look at the industry from the long-term perspective (10-15 years). With every sector growing at 30-40% and the GDP galloping at 8-10%, the aviation sector cannot be outside of all this,” quips Capt Gopinath.