Airlines may fly into a $600-mn loss: CAPA
Carriers added capacity to capture coveted airport slots owned by Jet, leading to a drop in fares
Aviation consultancy CAPA estimates a full-year loss of $500-600 million for Indian carriers primarily due to a sharp fall in airfares on some of the most profitable routes as the airlines mounted additional capacity in a bid to capture coveted airport slots owned by the now defunct Jet Airways.
Centre for Asia Pacific Aviation (CAPA) said that the latest estimate for India's domestic market was its sharpest downward revision from one quarter to the next in 16 years. It had earlier predicted a profit of $500-700 million for Indian airlines.
During the first nine months of financial year 2020, the sector also witnessed a moderation in growth with both domestic and international traffic volumes being flat as capacity expansion by different carriers went towards replacing the seats lost in the sector due to the collapse of Jet Airways.
In February, CAPA had estimated a full-year profit of $400-500 million for IndiGo which has now been slashed to a sixth, at $70-90 million, primarily due to a new accounting standard adopted by the airline as well as an increase in maintenance costs towards its older A320neos.
Similarly, a prediction of a record profit for competitor SpiceJet has been revised to break-even or a moderate loss.
The primary challenge before the airline has been the complexity of operations due to the induction of Jet Airways’ aircraft configured differently from its own to include business class.
Moreover, there was also a significant cost increase as these were older planes which required more maintenance.
Further, a lack of financial support for Air India from the government has resulted in as many as 26 of its planes being grounded due to a shortage of funds to replace engines as well as buy spare parts.
CAPA estimates Air India to post a loss of $500 million in FY 2020 after posting a net loss of $1.2 billion in the last fiscal.
The consultancy recommends that the government review the challenges before the sector following the demise of Jet Airways and subject airlines to an annual review where they may be required to prove that they have sufficient cash reserves to continue flying.