Rising ATF prices, low yields hit airlines' bottomline

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Is the high cost of aviation turbine fuel (ATF) and dropping yields from sale of passenger tickets pushing the airline industry deeper into the red?

Industry watchers estimate that domestic airlines are losing anything between Rs 2 crore and Rs 3.5 crore per aircraft per month, while the yield per passenger on an average journey of between 60 and 90 minutes has come down from around Rs 2,800 earlier this year to about Rs 2,200 now.

In addition, the airlines' operations have also been affected by the continuously rising prices of ATF. The domestic ATF price rose again this month touching Rs 46,000 a kilolitre up from Rs 38,000 a kilolitre in April. In the domestic market, ATF constitutes 35-40 per cent of the operating cost of most airlines.

This scenario has seen several operators such as the low-cost airlines Spice Jet and Air Deccan as also Jet Airways report losses.

While SpiceJet reported a loss of Rs 41 crore for the first full year of operations, Air Deccan that reported losses for the eight months period ended November 30, 2005, has indicated that the losses would continue. Jet Airways has reported a loss after tax of Rs 45 crore for the first quarter of this year.

However, despite the gloomy picture at present, most players are upbeat on the prospects. "We hope to be cash positive at the end of the first year of operations although we may miss the target by six to eight months. We will look at being profitable during the second full year of operation or the middle of the third year of operation," said the Managing Director of the low-cost airline GoAir, Mr Jeh Wadia. The airline took to the skies in November last year.

The President of Air Sahara, Mr Alok Sharma, felt that one way the losses of the domestic airlines could be reduced was by the Government reducing the taxes levied on ATF. Asked about the financial health of the airline, he said, "We are now on the road to recovery. We have registered a 25 per cent increase in passengers carried and this should have a favourable impact on our bottomline."

Despite the losses, the Managing Director of Air Deccan, Captain G.R. Gopinath, was upbeat. "I am optimistic about India and, therefore, the civil aviation sector. We cannot have a scenario where the gross domestic product grows at 8-9 per cent and the air travel market also expands," said Captain Gopinath.

The Senior Vice-President, Boeing, Dr Dinesh Keskar, added that despite the reported losses incurred by the domestic airline industry, the aircraft manufacturer was bullish on India

Taken from Business Line

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