Fairwinds blowing on aviation horizon
Airlines around the world are seeing signs of recovery
Though the industry is not raking in huge profits, they are nevertheless reducing losses significantly, writes B S Arun
After seeing their earnings touch rock-bottom owing to a series of issues including the recent worldwide recession, there seems to a faint light at the end of the tunnel for the airlines industry both in India and around the globe. Not that the industry is raking in huge profits but losses are being reduced significantly. And that includes the crisis-ridden Air India!
There is a visible increase in passenger traffic but then losses of many airlines have not been wiped off. True, leading private carrier Jet Airways posted a 10.5 per cent increase in net profit to Rs 58.6 crore in the fourth quarter of 2009-10 over the same period in 2008-09. Low-fare airlines Indigo and SpiceJet have reported profits for the year, the second one registering net profit for the first time ever. Private carrier Kingfisher Airlines reduced its net loss to Rs 1,647 crore for 2009-10, compared with Rs 2,140 crore it posted in the previous year. Jeh Wadia-owned GoAir made profits at the operating level while Paramount Airlines, now left with just one aircraft after technical trouble and payment disputes with lessors, too turned black. As regards the state-owned Air India, it posted a 9.7 per cent decline in net loss to Rs 1,473.85 crore in the October-December 2009 quarter, from Rs 1,632.23 crore in the corresponding period of previous year.
The return of better times for aviation firms has been something they were desperately looking forward to for the last two years. The airlines in the country had together incurred losses of about Rs 9,340 crore in 2008-09 forcing the carriers, especially the budget ones, to rationalise their expansion plans. Full-service carriers had to scrap some flights and turn some of their aircraft to their no-frills or low-fare affiliates.
Jet Airways, India’s largest airline operator in terms of market share, has been in the black for successive quarters, having made a Rs 100 crore net profit in the third one in 2009-10. The carrier’s net income from operations rose 15 per cent to Rs 2,604.9 crore from Rs 2,263.4 crore in the fourth quarter. Perhaps this made the airline announce a 3 per cent hike in salary for pilots. The airline said in a statement that the market was looking healthy.
Domestic air traffic has seen a reviving trend over the past few months. Jet Airways India and Jet Konnect together have a market share of 25.9 per cent. Jet capitalised on the improvement in global business and leisure travel, posting record passenger load factors in May 2010. The airline carried 8.69 lakh revenue passengers in May 2010, registering a buoyant 41.2 per cent increase as compared to the same period last year. This made Jet CEO Nikos Kardassis remark: “Our enhanced domestic and international network capabilities, coupled with strategic code-shares, have further helped us deliver seamless travel solutions to our discerning guests.”
Private air carrier SpiceJet turned in an impressive performance — it has posted a net profit of Rs 27.50 crore for the January-March quarter of the 2009-10 fiscal. For the fiscal 2009-10, the airline reported a net profit of Rs 61.4 crore. It had a loss of Rs 352.5 crore in the previous financial year. IndiGo posted a profit of $18.3 million for the year ended March 31, 2009.
Airlines have achieved high levels of seat factors, as well as yield growth. Industry traffic grew by 21 per cent in the fourth quarter of 2009-10, as compared with the same quarter in 2008-09. The total domestic passengers carried by the domestic airlines in the first quarter of 2010 — January to March — was 118.53 lakh as against 98.22 lakh during the corresponding period of 2009. Almost every airline increased its market share. Low fare carriers have been in the forefront in this regard as they corner, according to one estimate, more than 70 per cent of the tickets sold in India.
Positive forecast
Globally too, airlines reported a healthy trend. The International Air Transport Association (IATA), the trade body of airlines, expects airlines to post a global profit of $2.5 billion in 2010 as against a loss of $2.8 billion last year. Industry revenues are forecast to be $545 billion in 2010. This is up from the $483 billion in 2009, but still below the $564 billion achieved in 2008. “The global economy is recovering from the depths of the financial crisis much faster than could have been anticipated”, said IATA’s outgoing Director General and CEO Giovanni Bisignani. International passenger traffic is forecast to grow by 7.1 per cent in 2010 while cargo traffic will expand by 18.5 per cent. This is significantly better than the previous forecast growth of 5.6 per cent and 12.0 per cent respectively. Yields are now forecast to grow by 4.5 per cent for both the cargo and passenger business. “This is a significant improvement from the previously forecast yield growth of 2 per cent in passenger markets”, IATA says.
However, the picture is not all that rosy. Private carrier Kingfisher Airlines posted a loss of Rs 1,647 crore for 2009-10. The reason for the dismal performance has been mainly due to grounded aircraft, premature termination of aircraft lease and foreign exchange losses. The airline had incurred a loss of Rs 2,140 crore in the previous fiscal. “This performance has been delivered despite the impact of extraordinary items totalling more than Rs 640 crore due to several uncontrollable factors,” the airline said in a statement.
There are reports that the State Bank of India has approached the Reserve Bank of India with a proposal to restructure a loan of around Rs 2,000 crore given to Kingfisher Airlines, adding to the funding woes of the debt-ridden carrier.
Air India too was not far behind. Bogged down by repeated employees’ agitation during the past year, the state carrier’s losses for 2010 is estimated at Rs 5400 crore. The badly bruised airline, which is recovering from the worst air disaster in the country that killed over 160 in Mangalore last month, saw its overdraft touch Rs 18,500 crore. It has run up a bill of Rs 23,000 crore for its aircraft acquisition programme. It is sitting on huge debt and the losses of Rs 13,461 crore it made between 2006 to 2010 is making it difficult to return to black. Will AI be heading for better days as Prime Minister Manmohan Singh himself said on June 1 that the airline was being restructured and the government will infuse Rs 1,200 crore as additional equity in it? This is in addition to the Rs 800 crore already released.
In this gloomy scenario, the budget airlines present a refreshing picture. How could they make the turnaround? SpiceJet COO Samyukta Sridharan told Deccan Herald: “It could happen because of a couple of things such as air traffic growth which is robust. In the last five to six months, there is growth of 18 to 20 per cent and it has almost gone back to the high levels of 2007. Secondly, this is also because SpiceJet did not add capacity which means the gap between demand and supply got narrowed. Fares which were low, now got stabilised. Last year fuel prices were lower by 30 per cent. We expect traffic growth to continue this year too. We are starting overseas services to three Saarc countries in two months”. Indigo, like SpiceJet, will be flying overseas, to Asean countries.
