Airlines stare at losses, new players to fuel price war

January 18, 2014 05:20 am | Updated November 16, 2021 06:34 pm IST - MUMBAI

The airline industry in India will continue to incur losses, with four out of the five airlines e expected to report annual loss, as business environment continues to remain challenging.

The entry of new airlines during this year will make it more difficult for the incumbent airlines, whose finances have weakened further, said aviation consultancy Centre for Asia Pacific Aviation (CAPA) in a report.

As per CAPA, all airlines from India collectively lost over $500 million in the September, 2013, quarter. And despite the strong December quarter, the airlines are expected to report collective loss of $175-250 million, excluding one-off adjustments.

“In financial year 2013, Indian carriers lost an average of Rs. 1,500 ($24.40) on every passenger carried. And this is even before the entry of several planned start-ups in 2014. Every carrier is expected to post losses in the current fourth quarter based on current trends and a fare war is not ruled out, which will likely result in Jet Airways and SpiceJet reporting record full year losses,” CAPA said .

The report also said that Jet is expected to burn almost the entire capital generated from the sale of 24 per cent stake to Etihad.

It is possible that the Jet Airways Group’s financial year 2014 losses could be close to 70-80 per cent of the total combined losses since 2007, which stand at $460 million,” CAPA said. “SpiceJet is expected to report a record full year loss in financial year 2014 which could be equivalent to its entire combined losses since 2007, which stand at $193 million,” it added.

Air India’s losses could exceed $750-800 million in financial year 2014. IndiGo and GoAir are the only airlines likely to be profitable in financial year 2014, although IndiGo’s result could fall short of earlier expectations of $100 to $110 million, CAPA said, adding that IndoGo had reported net profit of $145 million last year.

GoAir has almost undone the record quarterly result achieved in the first quarter with heavy losses in the second quarter and a near breakeven situation in the third quarter. “The high yields at the beginning of the year have declined significantly such that we do not rule out a modest loss of GoAir for the full year,” CAPA said.

The think-tank also said there is no imminent sign of relief on the cost front as the Reserve Bank of India seems to be comfortable with the current dollar-rupee exchange rate of Rs.61-62. Airport charges will also continue to increase, adding more problems for airlines.

Several new entrants, including AirAsia India, Tata-SIA and Air One are expected to add around 20 aircraft to the domestic market in the coming financial year. Apart from these, Easy Air and Air Pegasus are also looking at launching this year. A further one or two new LCC start-ups are also likely, according to CAPA.

“Inexperience and the drive to generate cash can lead to irrational pricing and capacity that destabilises the entire market. A further one or two similar quarters could test the holding power of some airlines,” CAPA added.

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