CAPA: Indian Airlines Could Lose $1.4 Billion

June 27--MUMBAI -- Combined airline losses for India are expected to reach $1.4 billion in the current fiscal year as the structural viability of airline business models will continue to face pressures for costs are expected to increase while yields are likely to remain soft with new entrants coming into the market. This was according to the latest outlook report by consultancy firm Centre for Asia Pacific Aviation (Capa) that was released on Thursday.

The combined losses for Indian airlines were at $1.77 billion in the last fiscal year and in the last seven years accumulated losses have reached $10.6 billion, Capa said.

"Several incumbent carriers are in a precarious financial position with average cash balances equivalent to less than three weeks revenue. Airlines, other than IndiGo will require $1.6 billion of funding this year just to sustain their business models. The prospects for further direct investment in airlines remains very uncertain in the current climate," Capa said in its report.

These profitability projections are subject to significant external factors. "We have assumed oil at an average of $110/barrel for the year (and this may be impacted by instability in the Middle East) and an exchange rate in the range of Rs.58-60 to the dollar. It also assumes that pricing discipline will by and large be maintained. Extended periods of aggressive discounting could lead to further deterioration in financial performance," Capa said.

Indian airlines had Rs.3,250 crore ($585 million) of cash on hand at the end of 2013-14. With annual industry turnover in excess of $10 billion, this represents the equivalent of less than three weeks revenue, it said.

Jet Airways (India) Ltd, India's second-largest airline by passengers, logged a seventh straight annual loss in 2013-14 as fuel prices and airport costs remained stubbornly high. The airline reported a loss of Rs.3,667 crore for the fiscal year, more than seven times the Rs.485.5 crore loss it reported in the previous year.

In other words, Jet Airways has lost an average of Rs.8.7 crore every day that it flew in the country with a domestic market share of around 22%.

SpiceJet Ltd, the country's second-largest budget airline, posted its biggest-ever net loss of Rs.1,003.24 crore for the year ended 31 March. The loss widened five times from Rs.191.07 crore a year ago. In sum, the Kalanithi Maran-controlled firm lost an average of Rs.2.75 crore every day that it flew in India, with a domestic market share of nearly 20%. SpiceJet blamed the loss on the weak rupee and slower economic growth, which has limited growth in passenger traffic.

In the 12 months ended 31 March, domestic traffic in India increased by 5.2%.

Capa projected marginal growth in FY15 in the range of 6-8% year-on-year with a greater likelihood toward the lower end of that range.

Copyright 2014 - Mint, New Delhi

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