‘Airlines Headed into Red Zone, Again’
Pressure on yields, rising costs may see industry returning to losses this fiscal: CAPA
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.