IATA sees airline consolidation in India

The Indian airline industry will witness consolidation this year as local carriers brace up for a fifth consecutive year of losses, according to global airline trade body International Air Transport Association (IATA). “With load factors at 75% and such weak financial condition, some sort of consolidation or exit of capacity is called for,” Brian Pearce, IATA’S Chief Economist said in Delhi.

Local airlines, including Air India Ltd, Kingfisher Airlines Ltd, Jet Airways (India) Ltd, Spicejet Ltd and Goair (India) Ltd, are expected to lose a combined $2.5 billion in the year to March 31, according to the Centre for Asia Pacific Aviation.

Pearce said he can’t remember the last time India’s airline industry contributed to profits for the Asia-pacific region, which is tracked by IATA for its global forecast on the airline industry’s financials. “It’s difficult to predict when profits will appear, that’s really hard to say. But I am sure they will come,” he said.

In December, IATA said the global airline industry’s profit will fall to $3.5 billion in 2012 from $6.9 billion in 2011. IATA’S 240-member airlines comprise 94% of all international traffic.

“Europe is the only region in 2012 that we are expecting will make losses,” he said. “The rest of the world, Asia-pacific region and China are doing very well.”

Pearce, who is visiting India to participate in a government-led initiative to decide on the economic regulation of airports said, the Indian government needs to provide the airline sector here with some favourable policies and high airport tariffs may restrict growth. “We are proposing we stick with economic regulation that the regulator has put in place. In particular, we think it is really important for Indian passengers that we stick to a single till system rather than dual till that some are proposing,” Pearce said.

Single till is favoured by airlines and passengers, while dual till is favoured by airports. Under the so-called single till model, airport charges are fixed by taking into account all principal airport activities, including aeronautical or flying-related activities and non-aeronautical activities such as commercial use of airport space. The dual till model, on the other hand, considers only aeronautical activities.

London’s Heathrow is the best example of an airport to follow and the belief that airports need a dual till system to remain profitable was unfounded, Pearce said. “I don’t think that is true, particularly in Europe. London’s Heathrow is one of the biggest airports commercially that operates on single till and it hasn’t stopped airport investors from getting reasonable (returns on),” he said. Allowing foreign airlines to invest in Indian carriers was a good move, Pearce said, adding that many international airlines are facing tough times. “Everyone is short of cash at the moment. So obviously it is a difficult environment. There is obviously tremendous potential in the long run,” he said.

On the European Union’s move to impose penalties on exceeding carbon emission limits, Pearce said the EU levy was escalating into a potential trade war. “It looks like it’s developing into a serious dispute between governments and we seriously want to avoid it,” Pearce said.

(Courtesy Livemint)