Private airlines to post profit in FY14

Private airlines are estimated to post combined profit of $250-300 million in the current financial year on the back of approvals from the government, unbundle services, to directly import aviation turbine fuel (ATF) and from savings in fuel consumption from introduction of satellite-based navigation systems and flexi use of civil and military airspace, Centre for Asia Pacific Aviation (CAPA) said in its report.

The overall industry, however, expected to remain in the red due to projected losses of $750-800 at Air India in FY13. In the last financial year, Indian airlines had posted combined losses to the tune of $1.65 billion as compared to $2.28 billion registered the previous fiscal.

While full service carrier Jet Airways is projected to return to profitability with net profit of over $125 due to paring of high interest rupee debt by $600 million and access to cheaper financing options by way of the alliance with Etihad, SpiceJet and GoAir are expected to book profits of $25-30 million and $8-10 million in the current year.

CAPA said the profit levels in the budget carriers would however depend on their ability to control losses in the traditionally weak second and fourth quarters.

Fares are expected to remain soft this fiscal as compared to FY13, when ticket prices had increased by 15-20%. Domestic traffic is expected to grow by 4-6% to around 60 million this fiscal with much of the growth taking place in the second half of the fiscal. The third quarter with scheduled holidays are expected to give a push to air travel followed by the state elections in November anhd the general elections in May 2014. International traffic is expected to go up by 10-12% in the same period due to expansion of operations by Indian carriers and grant of more bilateral traffic rights.

Jet is already profitable on international operations and is expected to further strengthen its performance in the coming year as a result of its increasing cooperation with Etihad. IndiGo and SpiceJet are both nearing break‐even on overseas routes. However Air India continues to incur huge losses on international services due. The 787s will help but the structural issues run
deep and this will impact the carrier’s overall turnaround prospects, CAPA said.

Challenges on the operational front are expected to continue. Fuel costs are likely to remain high compelling airlines to consider directly importing ATF to gain exemption from sales taxation. Due to logistical and infrastructural challenges, most airlines have not taken steps to import ATF till now.

CAPA said in its report that SpiceJet is likely to commence imports in a limited scale in the second quarter of this fiscal. If successful the initiative can create a long term cost base for domestic operations.

If Jet Airways proceeds down the direct import path it may be able to leverage its relationship with Etihad to secure favourable commercial terms and reduce the advance cash commitments required by fuel suppliers in Abu Dhabi. One of the stumbling blocks to date has been that carriers do not have available cash balances to be able to place the bulk orders that are required for wholesale import purposes.