Aviation Outlook India 2008: Price surge magnifies airline losses

11 June 2008

Mumbai: India's airline sector is headed in for turbulent times created by a surge in global fuel prices that have forced it to hike fares, and resulted in the slowing of passenger growth.

Its woes pushed airlines to a combined loss of $938 billion in the fiscal year to March 2008, and aviation secretary Ashok Chawla opines that the figure could double this year if oil prices remain at current levels.

The forecast represents almost a third of the total global losses of $6.1 billion projected by the International Air Transport Association (IATA) a week ago, in case oil stays around $135 per barrel till year-end.

Centre for Asia Pacific Aviation (CAPA) India CEO Kapil Kaul said, "Aggressive consolidation is inevitable… there will be exits, strategic alliances, airlines will have to work out how to share resources and rationalise route networks so carriers complement each other rather than compete." Kaul says right now, India's airlines are losing an average $30 per passenger.

The price of oil has also hammered down growth into single digits. With fares costlier, domestic air passenger traffic rose just 8.7 per cent in Apr 2008 year-on-year, marking the slowest growth rate in four years as travellers switched back to trains and cars, or opted not to travel. Passenger growth is now at a snail's pace compare to the annual government forecast of a 25 per cent expansion until the end of the decade.

Speaking at the Aviation Outlook India 2008, Kaul said"We should see these things (consolidation and route rationalisation) start happening by July, August when the (Indian) off peak season starts… but the next 12 to 18 months will be very hostile." Kaul added that in the short term, the sector's problems could mean deferring purchases of 25 to 30 aircraft this year, mainly in the narrow-bodied segment.