Indian airlines, excluding the grounded Kingfisher Airlines Ltd, are expected to lose a combined $400-450 million (around Rs.2,400 crore-2,700 crore) in the second quarter of the current fiscal, consulting firm Centre for Asia Pacific Aviation (Capa) has said. In a report published on its website, Capa said that Air India would account for the largest share of the loss, but as the airline continues to be funded by the government and its overall financial performance has improved in the past year, it is not expected to press the panic button.
In the first quarter of the current fiscal year, the airline industry lost nearly $200 million although low-fare carriers had posted profit in the range of $40-$50 million. The airlines lost an estimated $1.95 billion in the last fiscal on combined revenue of $9.5 billion.
“India’s aviation industry continues to face increasing challenges as disappointing airline financial results in the three months ended 30 June 2013 (Q1FY14) are expected to deteriorate in the second quarter, traditionally the weakest quarter,” the report said. “The current yield environment is particularly poor, with July yields down approximately 18-20% relative to the Q1 average, and August expected to see a further 5-8% decline,” it added. A gloomy economic outlook has discouraged air travel in the country, where airlines have been struggling in the face of high costs and intense competition. Kingfisher Airlines was grounded late last year by labour unrest and regulatory issues, Air India is surviving on a government lifeline and Jet Airways (India) Ltd has agreed to sell a 24% stake to Etihad Airways PJSC for $379 million in a deal still awaiting final approvals.
Airlines have taken to cutting fares in recent months, but the discounting has failed to stimulate the market and the second quarter is likely to see only marginal year-on-year traffic growth, Capa said. On 3 August, Jet Airways, the second largest airline by passengers carried, cut ticket prices by more than half for bookings for seven days on or before 9 August in a move to fill seats during the lean season. Jet Airways put on sale 700,000 seats on domestic flights starting at Rs.1,777. This forced other airlines to follow suit. “India’s airline pricing regime in Q2 is an indication of the irrational competition which exists in the market and there are no signs of fares stabilising at least until October 2013. Meanwhile the cost environment remains hostile with high fuel prices compounded by a weak rupee,” Capa said.
“There exists an overall systemic weakness with low fares and high costs, and with industry risks at a peak there do not appear to be any clear initiatives under way, either by industry or government, to correct the deteriorating financial situation,” it added. Jet Airways had reported a loss in the three months ended 30 June as a slump in the rupee offset any gains it made in what’s considered to be a strong quarter for domestic airlines. The company made a loss of Rs.355 crore compared with a net profit of Rs.24.7 crore in the year earlier. Net sales fell 13% to Rs.3,778.78 crore from Rs.4,344.92 crore. Jet’s domestic business is struggling and the fact that the carrier’s full year domestic loss in fiscal 2013 extended into the first quarter of the current year, a peak period for air travel, suggests that there are underlying structural challenges, Capa said.
“In the last five quarters Jet has lost in excess of $250 million on domestic operations. The carrier cannot deliver sustained overall profitability unless the domestic business is turned around,” it said.
Rival and low-fare airline SpiceJet Ltd posted a near 10% decline in profit in the April-June quarter because of the weak rupee and the higher cost of jet fuel. Net profit dropped to Rs.50.6 crore from Rs.56 crore a year ago despite air fares rising 5% and revenue increasing by 16% to Rs.1,704 crore.
The third listed firm and grounded airline Kingfisher Airlines’ loss widened sharply to Rs.1,156.91 crore in the June quarter from Rs.650.78 crore a year earlier, primarily as the cost of returning aircraft more than doubled. It reported no revenue.
