Forget this financial year, Kingfisher Airlines isn't likely to post a profit even in the next financial year ending March 2013 unless we have a miracle.
Now a report by Bank of America Merrill Lynch (BoAML) says that SpiceJet and Jet Airways are also expected to post losses in the next financial year. That means all of India's listed airlines are going to be loss-making not just this year, but next year as well.
Yet, airline stocks have rallied by 70-100 percent from their December lows on the back of robust foreign investor flows into the capital markets. The rally has been largely driven by capacity cuts from Kingfisher (which is expected to align supply better with demand) and growing hopes of reform in the sector.
However, those hopes are misplaced, the brokerage says. It believes that implementing reforms will take a long time, and even the supply cuts might not help because demand is growing slower than supply.
BoAML expects domestic traffic growth to fall below 10 percent in 2012 from around 16 percent in 2011 on account of slowing economic growth, airport constraints at key metros such as Mumbai and possible cuts in corporate travel budgets. Plus, excess capacity has not really reduced. In the past four months, while Kingfisher has grounded 36 aircraft, other carriers have added about 20, the brokerage notes.
Then of course, oil prices are rising. Crude oil prices hit a nine-month high of $120 a barrel recently and it's very likely they could surge higher.
That's concerning because jet fuel, produced from crude, is the single-largest expense for airlines, accounting for nearly 50 percent of their operating expenses, and has a huge impact on their profitability.
In other words, the outlook for Indian carriers remains, as always, stormy.