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Private airlines could turn profitable in the December quarter on strong yields and better load factors. The private carriers collectively could post a profit of $120-140 million for the quarter although Air India will keep the sector in the red, says CAPA (the Centre for Asia Pacific Aviation) India.
The airlines are hoping for a robust second half. October has not lived up to expectations, with most carriers breaking-even and some posting modest losses. However, November and December looks encouraging, said CAPA India, which tracks the aviation sector, in its report.
Despite the projected strength, the hostile cost environment — over some of which management has limited control such as cost of fuel and the depreciation of the rupee — continues to impact all carriers, it said.
Q1 Good
According to CAPA India, the first quarter was the best in 18 months. All private Indian carriers, excluding Kingfisher, were profitable. In several cases, this was due to sale-and-leaseback and other income.
In the first quarter, the improved matching of demand and supply due to contraction of capacity by Kingfisher, combined with greater pricing discipline, resulted in a substantial increase in average yields. This contributed to airlines’ improved performance.
However, in the second quarter, underlying structural challenges remained due to hostile cost environment primarily related to high fuel prices and a weak currency. The particularly strong performance by Air India, which achieved the highest average fare and reported a small operating profit on domestic operations, reflected the changing market dynamics.
CAPA India estimates that the second quarter, which is traditionally a weak quarter, saw a return to significant losses across the board, with airlines losing a combined $470-550 million (results for IndiGo and Go Air are of CAPA India estimates as these two are not listed and do not publish their financials).
Kingfisher has been steadily contracting over the last 12 months. In September, the last month before it suspended services, it had only a 3.2 per cent share of the domestic market. As a result, the sector has already largely adjusted to the reduction in capacity. However, the current grounding of the airline could result in a seat crunch on key routes such as Delhi-Mumbai and Mumbai-Bangalore, particularly during the upcoming Diwali holiday season, according to the report.
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