For The Fifth time in a row, there is no Airline Company in The B&E Power 100 list. Swati Sharma Writes on why there will be none Next Year too.
There are two reasons why even after five years of annual losses, airlines in India have failed to move out of the red zone. First, the rise of ATF price by 51% during H2, FY2010-11, made fuel dearer than anticipated. For instance, due to the rise in crude, Jet shelled out Rs.12.79 billion on fuel during Q4 last year – as compared to a fuel bill of Rs.8.36 billion during the same period a year back. This eroded Jet’s margins by Rs.3.43 billion, thereby wiping out all the hard work done during H1, FY2010-11 and resulting in a loss of Rs.858.4 million for the year. While pointing out other factors ailing the aviation market in India besides ATF prices, Ketki Mahajan, Aerospace Analyst at Frost & Sullivan, tells B&E, “Airlines can no longer work on low cost model. This is because of high crude oil prices, and high aviation fuel tax levied by various states, high airport charges and rising service tax on fares.”
The increase in fuel cost (to unprecedented levels, which rose to 39% of operating cost by Q4, FY2010-11), coupled with the second big problem, the presence of fare wars (triggered-off by Air India and which became prominent during Q4 last financial year), made profit-making an impossible task to achieve. So the question remains – will Indian airlines finally get into the act of making profits when B&E Power 100 knocks on the doors of India Inc. again next year?
The year began on a note which was tough to digest for aviators across the world. For debt-laden Indian carriers, it was a nightmare of a beginning, with crude crossing the $114-per-barrel mark. Then there is the fact that at present, the situation arising out of the inability of the players to pass on the price hike to passengers is made worse with state governments adding more taxes on the players, with no intentions to lower the already high sales tax on ATF. Infuriated on this attitude of the government, Sudheer Raghavan, COO, Jet Airways, tells B&E, “Sometime, we wonder why we are in the airline business at all. Not just Jet Airways’ but the entire sector’s future is questioned. We already have so many taxes; and by imposing more of them, the policy makers are only shackling us.” At present, airlines are paying Rs.57,166.96 per kilolitre of fuel – 33.5% more than what they were doing 12 months back. Do you even expect their already loss-making situation to improve with costs rising? Let us not day-dream.
Fact is, B&E Power 100 next year will yet again, see no Indian airline being featured in the list. Reason: the carriers are all set to lose more money in FY2011-12 than they did the previous year, due to higher ATF prices & excess capacity. In June 2011, IATA even slashed down the worldwide profit forecast for the industry for FY2011, to $4 billion – due to an increase of 53.5% in operating cost as compared to FY2010. With average oil price forecasted to remain around the $100-plus zone during the better half of EY2011-12, and with fuel constituting 30-50% of an airline’s cost in India even during the coming 12 months (internationally this value is around 14-15%), under ordinary circumstances, you could expect the top three airlines in India to lose anywhere in the range of $2.2-2.5 billion next year. And given that there is a lean quarter starting next month (July-September), expect a couple of fare wars, which will only make the air-pockets deeper. Forget about profits for the immediate year ahead, the question for Indian airlines is to face the issue of sustainability in the long run. Some short-terms therapies might surface, but how long and at what cost will they help prolong life in the air? [Or perhaps they will.
The increase in fuel cost (to unprecedented levels, which rose to 39% of operating cost by Q4, FY2010-11), coupled with the second big problem, the presence of fare wars (triggered-off by Air India and which became prominent during Q4 last financial year), made profit-making an impossible task to achieve. So the question remains – will Indian airlines finally get into the act of making profits when B&E Power 100 knocks on the doors of India Inc. again next year?
The year began on a note which was tough to digest for aviators across the world. For debt-laden Indian carriers, it was a nightmare of a beginning, with crude crossing the $114-per-barrel mark. Then there is the fact that at present, the situation arising out of the inability of the players to pass on the price hike to passengers is made worse with state governments adding more taxes on the players, with no intentions to lower the already high sales tax on ATF. Infuriated on this attitude of the government, Sudheer Raghavan, COO, Jet Airways, tells B&E, “Sometime, we wonder why we are in the airline business at all. Not just Jet Airways’ but the entire sector’s future is questioned. We already have so many taxes; and by imposing more of them, the policy makers are only shackling us.” At present, airlines are paying Rs.57,166.96 per kilolitre of fuel – 33.5% more than what they were doing 12 months back. Do you even expect their already loss-making situation to improve with costs rising? Let us not day-dream.
Fact is, B&E Power 100 next year will yet again, see no Indian airline being featured in the list. Reason: the carriers are all set to lose more money in FY2011-12 than they did the previous year, due to higher ATF prices & excess capacity. In June 2011, IATA even slashed down the worldwide profit forecast for the industry for FY2011, to $4 billion – due to an increase of 53.5% in operating cost as compared to FY2010. With average oil price forecasted to remain around the $100-plus zone during the better half of EY2011-12, and with fuel constituting 30-50% of an airline’s cost in India even during the coming 12 months (internationally this value is around 14-15%), under ordinary circumstances, you could expect the top three airlines in India to lose anywhere in the range of $2.2-2.5 billion next year. And given that there is a lean quarter starting next month (July-September), expect a couple of fare wars, which will only make the air-pockets deeper. Forget about profits for the immediate year ahead, the question for Indian airlines is to face the issue of sustainability in the long run. Some short-terms therapies might surface, but how long and at what cost will they help prolong life in the air? [Or perhaps they will.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
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Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age WomanIIPM's Management Consulting Arm-Planman Consulting
IIPM Prof. Arindam Chaudhuri on Internet Hooliganism
Arindam Chaudhuri: We need Hazare's leadership
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
