Ailing airlines bank on rising local traffic

Riding high on the growth in domestic traffic, loss-riden start-up airlines are confident to be back in the black in two years.

Analysts said domestic passenger traffic last year grew by 25 per cent to 25 million passengers.

"This growth rate will continue in the next four years and will increase the number of travellers to 60 million," they added.

While the Wadia group-promoted GoAir claims that it will make profit by end of the financial year 2006-07, SpiceJet, Kingfisher Airlines and Air Deccan are also expected to be in black in 2007-08.

"However, short-term outlook for the aviation industry remains bleak with the spiralling fuel and personnel costs," the analysts pointed out.

Meanwhile, full service airline Jet Airways, which commenced operations in 1993, has reported a net loss of Rs 44.98 crore for the first quarter of fiscal 2007 despite 24.78 per cent (Rs 1,678.76 crore) growth in total income from operations.

Airline industry sources point out that the expected profits by the next one year will be mainly volume coupled with increase in price. Consolidation of infrastructure, market share, yield management and realistic price will be the key to turnaround of these airlines. 

"It will take some time for the product to become a lifestyle or part of work culture. In the airline business, the industry will turn black when it gets stabilised, which is supplemented by change in price pattern," said Air Deccan managing director Captain GR Gopinath.

GoAir's managing director Jeh Wadia said: "We will post profits by the end of the financial year 2006-07. The new civil aviation policy will allow us to outsource engineering, ground operations and security to reduce costs by 20

per cent."

GoAir, which launched commercial operations in November 2005, operates a fleet of three Airbus A320s with 24 flights covering 13 cities, including Jammu and Srinagar.

According to Kingfisher Airlines chairman and managing director Vijay Mallya, "During 2006-07, the airline is likely to cover all operating costs and should break even in 2007-08."

"The estimated loss for this year could be less than Rs 100 crore," an executive added. Kingfisher Airlines started operations in May 2005.

Another no-frills carrier, SpiceJet, is likely to break even at the net level this financial year, and declared an operating profit of Rs 71.52 crore in the first year itself.

"Having consolidated its operation over the last year, SpiceJet is adding five additional aircraft by January 2007. With this, in the fiscal 2006-07, revenues are expected to increase by 100 per cent to approximately Rs 910 crore in FY'07 and costs, other than fuel, are expected to decline," company executives said.

Airlines are witnessing an unprecedented increase in domestic capacity even as they contend with declining yields, and higher input costs, said analysts.

"ATF accounts 35 to 40 per cent of an airline's overall cost. In the past 10 month, ATF prices had seen eight upward revisions. Airlines will recover that by way of imposing fuel surcharges," analysts added. Jet Airways has revised fuel surcharge to Rs 650 per ticket and others are expected to follow suit.