Aviation losses increase in 2012; profitability key to survival

The domestic airline industry’s fortunes seem to be changing for the better as the yields have increased due to a reduction in capacity. With Kingfisher’s capacity reducing, the airline industry’s capacity has shrunk leaving passengers with less fare buckets. This has had a positive impact on the sector as even if demand remains same, the passengers have to find seats from the existing airline carriers at a higher bucket levels.

“And that has helped increase yields. So fares have gone up vis-a-vis last year” said Sudheer Raghavan, Chief Commercial Officer, Jet Airways to Business Line.

Another boost to the airline sector is that crude oil prices have fallen to their 18-month lows.

However, the industry is in dire need for funds to sustain. But banks are reluctant to fund the sector. “There is no appetite among the banks to lend money. So at the end of the day the only route to survival is through profitability. This realisation, though late, has dawned on most carriers”, said Sudheer Raghavan, Chief Commercial Office, Jet Airways.

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While profitability is one aspect, what is also important is for the government to go in for policy reforms. The Cabinet was supposed to take up this issue by May end. However, nothing has happened so far.

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According to a report on the aviation sector by ICICI Direct,“Only allowing Foreign Direct Investment (FDI) by foreign carriers (if allowed) by itself would not help much to cure the ills of the sector over the medium term unless the sector fundamentals are set right first through policy changes with respect to taxes on ATF, free pricing”.

The domestic airline industry has had one of its worst times this financial year ended March 2012. According to data compiled by Firstpost, combined losses of the three listed companies increased to Rs 4,170 crore in 2011-12 from Rs 917 crore the previous year. While Kingfisher continued to account for the bulk of the losses (56 percent), Jet Airways and SpiceJet also slipped into the red after incurring a profit last year.

While profitability is one aspect, what is also important is for the government to go in for policy reforms.