‘Air­lines Headed into Red Zone, Again’

Pres­sure on yields, ris­ing costs may see in­dus­try re­turn­ing to losses this fis­cal: CAPA

The Economic Times - - Brands & Companies - Our Bureau

Mum­bai: In­dian air­lines face a creep­ing pres­sure on yields and a grad­ual inch-up in fuel costs, head­winds that may hurt their prof­its in the im­me­di­ate fu­ture.

The acute short­age in air­port in­fras­truc­ture is an­other long­stand­ing prob­lem re­strict­ing the in­dus­try’s abil­ity to fully meet soar­ing de­mand, air­line ex­ec­u­tives said at the CAPA In­dia Avi­a­tion Sum­mit 2017.

“Traf­fic may be surg­ing but last year’s prof­its may have been a high wa­ter mark: The in­dus­try is ex­pected to re­turn to losses of $250 mil­lion-$300 mil­lion in FY17 and $380 mil­lion-$450 mil­lion in FY18,” CAPA-Cen­tre for Avi­a­tion, a Syd­ney-based con­sul­tant, said in a note.

“CAPA es­ti­mates that In­dia’s air­lines re­ported a com­bined profit of $122 mil­lion in FY16 — the first time in a decade. But this era of in­dus­try prof­itabil­ity is likely to be short-lived. Traf­fic growth is be­ing stim­u­lated above its un­der­ly­ing de­mand as a re­sult of ex­cess ca­pac­ity and com­pet­i­tive fares. The down­ward pres­sure on yields, com­bined with cost creep, is ex­pected to push the con­sol­i­dated in­dus­try re­sult back into the red for the 12 months end­ing 31 March 2017. Third quar­ter re­sults for In­diGo and Jet Air­ways bear our assess­ment on prof­itabil­ity trends,” it added.

In­diGo’s net profit for Oc­to­ber-De­cem­ber fell by 25% while for Jet, it fell by a third. Jet CEO Amit Agar­wal said the pres­sure on yields would con­tinue for the in­dus­try this year.

“There is def­i­nitely a cost strain and it will con­tinue in 2017. If it gets out of hand, that will def­i­nitely be chal­leng­ing for the in­dus­try,” said Phee Teik Yeoh, CEO of Vis­tara, the joint ven­ture car­rier owned by Tata Sons and Singapore Air­lines.

“Air­lines are adding about twofour planes a month. But when you go to air­ports for slots, you don’t get any. Where do you put your air­craft? Air­ports have to re­ally catch up with the growth,” said San­jiv Kapoor, chief op­er­at­ing of­fi­cer at Vis­tara. Some were pos­i­tive how­ever. AirAsia In­dia CEO Amar Abrol said the air­line aims to dou­ble its rev­enue in 2017 com­pared to 2016. He didn’t spec­ify the un­listed air­line’s rev­enue in 2016.

He also said the air­line aims to take its fleet size to 14 by the end of this year and to 20 the next year. The com­pany has a cur­rent fleet size of 8 air­craft.

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