Airlines fly through turbulence of FY13
A recent CAPA India study highlights that Indian carriers have lost US$1.65 billion in FY13, 40% of annual loss was generated in the last quarter. But, Indigo came out with an estimated US$ 100-110 million in profit.
India’s
private airlines, which were once seen as a bright symbol of their country’s modernisation, are now coping with enormous losses and mounting debts. CAPA estimates that India’s airlines posted a combined loss of US$ 1.65 billion in FY13 US$1.15 billion (if Kingfisher is excluded), down from approximately US$ 2.28 billion the previous year. More than 40% of the loss was incurred in the last quarter alone, squandering the improved performance posted during the first nine months of the year. IndiGo, however, emerged as a clear winner with an estimated US$ 100- 110 million profit on revenue of US$1.5-1.6 billion.
A key contributor to the overall debt has been the industry’s accumulated losses since 2007, which were approaching US$ 9.5 billion as at March 31, 2013. This has resulted in continued erosion of the net worth of India’s carriers which are estimated as follows: Air India FY12 ( US$ 3 billion); GoAir FY12 ( US$ 107 million); IndiGo FY12 ( US$ 69 million); Jet Airways (US$62 million); Jet Konnect ( US$ 311 million); and SpiceJet (US$41million). Emirates emerges as India’s leading international airline in FY13
On the international front, an important develop- ment was that in FY-13, for the first time a foreign carrier, Emirates, claimed the highest market share for traffic to/ from India. Air India, historically the market leader on international routes, was impacted by the grounding of its 787s for most of the last quarter. Jet Airways only saw a marginal increase in traffic, as it consolidated its network and dropped services to points such as New York JFK, Milan, Johannesburg and Kuala Lumpur.
Both Jet Airways and Air India remain vulnerable on domestic routes, especially as they continue to operate with a full-service cost-structure in a market that has shifted predominantly to low-cost. Until both of these full-service carriers develop a competitive domestic cost-structure, the sector will remain unviable. Passenger numbers expected to cross 60 million once again in FY-14
The domestic traffic is expected to expand by four to six per cent in FY-14, with most of the growth to occur in the second half of the year. Starting from Q3, the traditional festival and holiday traffic is expected to be supplemented by increased passenger movements driven by state elections in November, and then by general elections some time prior to May 2014. AirAsia’s possible entry in the second half of this financial year could also provide some further growth, although the airline will still be relatively small even by the end of the forecast period. These factors could push growth to above six per cent subject to market conditions from Q3 onwards. CAPA expects that by the end of FY-14, domestic traffic will have matched or slightly exceeded the previous high water- mark of just over 60 million annual domestic passengers reported in FY-12. International traffic could grow at 10-12%
International traffic growth is expected to be more buoyant than domestic and could grow by 10-12 per cent, as Indian carriers expand and as more bilateral entitlements are expected to be granted to foreign carriers. As is the case for domestic traffic, the second half of the year is expected to account for majority of the growth. Capacity expansion during the year ahead is likely to be around 10 per cent, largely driven by LCCs. Jet is already profitable on international operations and is expected to further strengthen its performance in the coming year as a result of its increasing cooperation with Etihad. IndiGo and SpiceJet are both nearing breakeven on overseas routes. In toto: Losses to nullify profits
CAPA estimated that India’s private airlines could post combined profits of US$250-300 million or more in FY-14. The projected breakdown is as followsGoAir (US$8-10 million profit); IndiGo (US$100-120 million profit); Jet Airways (US$125+ million profit); SpiceJet (US$25-30 million profit). However, the overall industry result is expected to remain in the red, dragged down by a projected US$750-800 million loss from Air India. Ancillaries expected to be grasped with greater vigour as regulator gives green light
The recent green light given by the regulator for unbundling of fares ( although technically there was no formal restriction earlier) should see airlines pursue ancillary opportunities more aggressively. CAPA estimated that there is the potential for carriers to generate an additional US$500 million per annum through this channel to be developed over the next two years. Only a fraction of this is expected to be tapped in the coming year as it will take some time to implement new initiatives, however more significant benefits can be expected to accrue from FY15 onwards. Easy revenue options such as charging for premium seats and priority check- in could generate an additional US$10-12 million relatively quickly in the current financial year.