Indian sub-continent flag carriers flying through rough times: CAPA report

Mumbai: The Indian sub-continent's flag carriers are in deep trouble owing to low productivity, ageing fleets and years of neglect by their government shareholders, according to a Centre for Asia Pacific Aviation (CAPA) report. It says that high fuel prices have only magnified problems at Air India, Pakistan International Airlines (PIA), Biman Bangladesh Airlines and Sri Lankan Airlines.

If fuel prices remain at current levels, says CAPA, losses this year could double. The four airlines have reported combined losses of approximately $715 million (Rs3104 crore) in the year ended 31March 2008. CAPA says that losses of this magnitude would be difficult for governments to bear and could trigger a regulatory response by the governments in the region.

With the aviation sector experiencing increasing liberalization, air travel in the sub-continent has flourished in this decade. As these initiatives saw increased access for private and foreign carriers, flag carriers found themselves poorly equipped to cope with the competition. The dramatic climb in fuel prices only added to their burden.

CAPA says that though the carriers have significant aircraft orders in place, funding them is becoming an increasing challenge. It points out Air India expects to have generated a $458 million (Rs1988.6 crore) loss for the financial year ended 31 March 2008, and is currently preparing to request some equity injection and soft loans from the government for roughly the same amount to help fund its working capital requirements.

Bad market conditions have also seen it indefinitely postpone an IPO. Air India is also struggling in the domestic market, where rising fares and intense competition have impacted growth rates and load factors.

Air India has been reporting route rationalisation moves on a regular basis, which could see its international network capacity slashed by up to 20 per cent from next month. With a new chairman and managing director, Raghu Menon, in place, Air India has also announced major cost cutting measures across the length and breadth of the company's operations.

But with Jet Airways continuing to expand aggressively, adding its 20th international destination, Dubai, to its network tomorrow, and Kingfisher Airlines set to launch its international operations from next month, Air India is set to dig in its heels and fight to preserve its market share. It has already lowered fares across a number of routes substantially. CAPA says all these factors will likely ensure that the Indian flag carrier will continue to bleed for some time to come.

Sri Lankan Airlines reported a $45 million net profit in the year ended March 31, 2008, a result which was softened by the sale and leaseback of three A340s. Excluding these gains, the airline reported a $5.5 million loss, due to higher fuel prices. Fuel currently accounts for 52 per cent of Sri Lankan's costs, compared with 27 per cent last year.

With Emirates stepping out of a management and network support contract, the outlook for 2008-2009, says CAPA, is no longer promising.

Biman Bangladesh Airlines is expected to have generated losses of $12 million in 2007-2008, down from a provisional estimate of $80 million. The reduction is presumably due to large cutbacks in its operations, especially domestic routes, as many of its ageing aircraft have been grounded due to a lack of spare parts.

Pakistan International Airlines, which has accumulated losses of $647 million in the past three years, and is reported to be losing $20 million per month this year, has called on the government to assume all of its debts in return for taking control of a global portfolio of state-owned carrier's properties worth $1 billion.