Bangkok--25 Jun--Centre for Asia Pacific Aviation
Jet Airways may have unveiled a USD55 million fourth quarter loss (to 31-Mar-08), but much worse is set to come. Jet stated the next few quarters would be impacted negatively by very high fuel prices.
A senior manager revealed in an internal letter to key executives this week that the airline is currently losing USD2 million per day, including USD1 million as a result of its ambitious international expansion. According to the letter, the executive stated Jet “should not shy away” from cutting services if they do not cover variable costs.
This is instructive of what is occurring across the sector. With contributions to overheads off the agenda and variable costs surging due to rising oil prices, combined industry losses could reach USD2 billion in India this year.
Losses of this magnitude will inevitably force a shake-out. Only in this way can India's industry ready itself for the next round of growth.
SpiceJet is slashing 17% of its daily services next month and has been the centre of persistent take over speculation. Jet Airways, in a weakened financial position is an unlikely buyer, even though SpiceJet and JetLite are a good fit, in terms of network and fleet. Air India is in a far more troubled financial state, and is struggling merely to complete its own integration with Indian Airlines, much less take over another player.
Which leaves Kingfisher (which defied expectations with its takeover of Deccan last year) and the smaller players like Paramount, GoAir and Indigo to enact some rationalisation in the market. On recent form, Kingfisher is the likely instigator for change, although it too is experiencing growing pains.
Recent ‘consolidation’ efforts in India have had little impact on industry capacity levels. Only the high oil price is forcing India’s airlines to trim their schedules. To climb out of the present financial hole, capacity levels must fall. But that is only one part of a complex story. Fares must also increase and/or the state governments deliver on fuel taxation relief.