Nevrekar
8th Apr 2008, 00:49
MUMBAI: US carriers, never an epitome of good health in the best of times, are flying into particularly heavy weather these days. Three airlines have shut down operations in the past week, kayoed by twin punches from high oil prices and overcapacity.
The three that filed for bankruptcy include the venerable Aloha, which has been operating since 1961, ATA airlines and Skybus, an ambitious low-cost carrier started just an year ago.
Airlines in India too have been feeling the heat and Jet Airways chairman Naresh Goyal estimates that domestic carriers could end up losing close to a billion dollars this year. It is now close to a year since Indian airlines began consolidation to form larger groupings.
The three groups Air India-Indian, Kingfisher-Deccan and Jet Airways-Jetlite that have been formed are yet to taste the fruits of the merger. All three groups will end 2007-08 with losses.
But the bigger fear is that they could continue to be steeped into red ink well into the next fiscal because of a slower growth in demand. Forward bookings for the future have already given airlines an indication of demand in the next six months, and the figures do not look very encouraging, sources say.
Not surprising, that airlines like Indigo and SpiceJet are trying to stimulate the market by offering lakhs of tickets at low fares to get more leisure travellers to book.
Leisure traffic has been badly hit by the higher air fares which have resulted from higher fuel surcharge and taxes. Even at the lowest level, base fares on domestic routes are now at least Rs 3,000. This is because the fuel surcharge, taxes and congestion charge now add up to Rs 2,500.
“Fuel prices have reached the tipping point and are now causing a slowdown in demand,” says Jet Airways CEO Wolfgang Prock-Schaeur. Much of the hope for a recovery is now pinned on a slower addition of fresh capacity.
Siddhanta Sharma, executive chairman of SpiceJet says that demand growth has slowed down to about 18-20% in the January-March period this year. If the increase in capacity is limited to 10% this year, airlines can still hope to make money. But if we continue to add aircraft beyond this, the losses could pile up, he added.
Traditionally, the two models of doing business in the airline industry, the low-cost model and the full service airline model, or no-frills model have been at loggerheads. But both have been impacted by the increased costs.
In the US, low-cost poster boy Southwest got a black eye last week when a Congress committee fined the airline $10 mil-lion for safety violations after whistleblowers reported that the regulators FAA were being very cosy with the airline.
Pressures of keeping the fleet flying have come mainly from the in-tensely competitive industry. Back home, airline stocks have been trading near their 52-week lows on the BSE.
Though the market was up nearly 3% on Monday, Jet Airways closed flat at Rs 529, almost 50% down from its 52-week high of Rs 1,049 in December 2007. Low-cost carrier SpiceJet closed at Rs 39.20 down 1% over the last traded price and Deccan Aviation ended the day at Rs 121, up 4%.
The three that filed for bankruptcy include the venerable Aloha, which has been operating since 1961, ATA airlines and Skybus, an ambitious low-cost carrier started just an year ago.
Airlines in India too have been feeling the heat and Jet Airways chairman Naresh Goyal estimates that domestic carriers could end up losing close to a billion dollars this year. It is now close to a year since Indian airlines began consolidation to form larger groupings.
The three groups Air India-Indian, Kingfisher-Deccan and Jet Airways-Jetlite that have been formed are yet to taste the fruits of the merger. All three groups will end 2007-08 with losses.
But the bigger fear is that they could continue to be steeped into red ink well into the next fiscal because of a slower growth in demand. Forward bookings for the future have already given airlines an indication of demand in the next six months, and the figures do not look very encouraging, sources say.
Not surprising, that airlines like Indigo and SpiceJet are trying to stimulate the market by offering lakhs of tickets at low fares to get more leisure travellers to book.
Leisure traffic has been badly hit by the higher air fares which have resulted from higher fuel surcharge and taxes. Even at the lowest level, base fares on domestic routes are now at least Rs 3,000. This is because the fuel surcharge, taxes and congestion charge now add up to Rs 2,500.
“Fuel prices have reached the tipping point and are now causing a slowdown in demand,” says Jet Airways CEO Wolfgang Prock-Schaeur. Much of the hope for a recovery is now pinned on a slower addition of fresh capacity.
Siddhanta Sharma, executive chairman of SpiceJet says that demand growth has slowed down to about 18-20% in the January-March period this year. If the increase in capacity is limited to 10% this year, airlines can still hope to make money. But if we continue to add aircraft beyond this, the losses could pile up, he added.
Traditionally, the two models of doing business in the airline industry, the low-cost model and the full service airline model, or no-frills model have been at loggerheads. But both have been impacted by the increased costs.
In the US, low-cost poster boy Southwest got a black eye last week when a Congress committee fined the airline $10 mil-lion for safety violations after whistleblowers reported that the regulators FAA were being very cosy with the airline.
Pressures of keeping the fleet flying have come mainly from the in-tensely competitive industry. Back home, airline stocks have been trading near their 52-week lows on the BSE.
Though the market was up nearly 3% on Monday, Jet Airways closed flat at Rs 529, almost 50% down from its 52-week high of Rs 1,049 in December 2007. Low-cost carrier SpiceJet closed at Rs 39.20 down 1% over the last traded price and Deccan Aviation ended the day at Rs 121, up 4%.