Rising airport charges (although they are falling globally), the growing gap between fuel costs in India and globally, pressure from travel agents threatening to boycott ticket sales and a 20 per cent fall in inbound premium passenger travel have forced international carriers to reduce their exposure in the country.
According to estimates by the Centre for Asia Pacific Aviation, international carriers' margins have dropped to single digits and even turned negative in some cases, from 10 to 20 per cent early last year.
European carriers, which carry a large proportion of outbound Indian passengers to the US and Canada, have been hit the hardest.
"Let me just say that it is now difficult to do business in India. Our margins have been hit, while our costs have increased," said Marnix Fruitema, senior vice-president, India and Asia-Pacific, for KLM, adding, "Our load factors in India range in the 80s and our break-even loads are hovering around 90s."
He said airports around the world have cut airport charges, whereas Indian airports have increased theirs. Among airports that have lowered airport charges between 10 and 50 per cent are Singapore, Thailand and Korea. "Our airport charges in India have gone up 9 to 10 per cent in the last few months," Fruitema said.
KLM pulled out of Hyderabad last October and operates only to Mumbai and Delhi currently. The airline has no plans to deploy additional flights to India for the time being. Its partner Air France recently pulled out of Chennai. KLM will deploy 5 per cent less capacity in India this summer against last summer. The carrier is, however, considering code-share agreements with full-service carriers Jet Airways and Kingfisher to improve access to Indian destinations.
"Airport charges have been constantly rising in India. This does not align with the situation that all the airlines are facing right now," said C W Foo, General Manager, India, Singapore Airlines.
Singapore Airlines has cut capacity 11 per cent globally but the India cuts at 19 per cent are far steeper. The number of weekly flights is down from 55 last year to 45.
Foo added that the airline has no plans to add capacity in the Indian market right now, though it may add many flights to Mumbai and Delhi and other destinations later. Singapore Airlines has also been hit by the travel agents' protests, since the agents, who account for 70 to 80 per cent of ticket sales, have stopped selling the airline's tickets in India because it is not paying them commissions.
"Inbound travel has taken a huge hit, as has the premium (business and first class) passenger traffic, which contributes for the bulk of the revenues. This, obviously, will impact margins," said Kapil Kaul, CEO, Indian subcontinent, for CAPA.
KLM, for instance, had seen a 15 per cent fall in its global premium passenger traffic by October 2008, against a 5 per cent growth in 2007. Around 54 per cent of its outbound traffic from India goes further to the north Atlantic and 28 per cent flies onward to the rest of Europe.
For Virgin, 80 per cent of its traffic flies from India to London and the rest to north Atlantic routes like the US. Experts said all these segments had been adversely affected.
An executive from a European carrier that recently pulled out of Mumbai said costs in India had definitely risen more than they had in other countries.
"Demand in routes like Mumbai has dropped 15 to 18 per cent. There was major overcapacity in Mumbai and profitability had gone down, which was why we pulled out of that destination," he said.
Ankur Bhatia, managing director of the global distribution system provider Amadeus India, added while European carriers had been the worst hit, the passenger load factors of all airlines had fallen anywhere between 10 and 40 per cent.
