Better times ahead for airlines

Loss-making Indian airlines should see better times in 2012-13 due to an improvement in pricing power after the gradual but substantial cancellation of flights by crisis-hit Kingfisher Airlines.

However, they may not make profit in the fourth quarter of 2011-12, as high costs, especially of aviation turbine fuel, are likely to offset their earnings.

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"The finances of airlines would improve in 2012-13 on the back of better pricing of tickets due to rationalisation of capacity.

"Capacity addition would also be moderate and the airlines would make money," said Kapil Kaul, chief executive officer (South Asia), Centre for Asia Pacific Aviation.

He said the fourth-quarter numbers would look better because of Kingfisher cancelling flights, pushing up domestic fares.

But the impact of good numbers may not show in the financials due to a rise in operating costs.

Compared to the last quarter of 2010-11, domestic fares were 15 to 18 per cent higher last quarter.

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But operating costs rose, as prices of jet fuel increased by 15 per cent and the rupee depreciated by over 11 per cent.

Though India is one of the fastest growing markets in terms of passenger volumes, domestic carriers made huge losses in the first three quarters of 2011-12.

Losses of the country's three listed carriers stood at Rs 2,462 crore (Rs 24.62 billion) in the nine months to December 2011.

Jet Airways made a loss of Rs 937 crore (Rs 9.37 billion) on a revenue of Rs 10,773 crore (Rs 107.73 billion), while SpiceJet and Kingfisher incurred losses of Rs 350 crore (Rs 3.5 billion) and Rs 1,175 crore (Rs 11.75 billion) on revenues of Rs 2,886 crore (Rs 28.86 billion) and Rs 4,751 crore (Rs 47.51 billion), respectively.

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Domestic airlines added 30 aircraft last calendar year, and have plans to induct an equal number of planes this year.

According to disclosed plans, they would add 29 aircraft; IndiGo would add 12, GoAir three and SpiceJet would induct four Boeing 737s and 10 Bombardier Q400s to boost regional connectivity.

Some experts expect the carriers to start making profits from the first quarter of 2012-13.

Mahantesh Sabard, senior analyst at financial services firm Fortune Equity India, said the airlines priced themselves quite pragmatically in the fourth quarter of 2011-12 and that continued.

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"Due to proper pricing of tickets, the airlines are supposed to make profits in the first quarter of this financial year itself," Sabard said.

But many believe the aviation industry will be shaky at least for six months and start making money after that.

"The aviation companies need to manage themselves for the coming six months, as the economic condition is unstable and no one knows about the movement crude prices will take.

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"Now, if the crude comes down and the airlines survive this downturn for at least six months, there will be no looking back," said Nikhil Vora, managing director of IDFC-SSKI, a financial advisory firm.

He said cancellation of flights by Kingfisher also helped other carriers in terms of passenger carriage and revenue.

"They should also utilise this time in rationalising their operations in terms of costs and make it more resilient to earn profits," he said.