The Hindu Business Line : Tough days ahead for airlines

As the orders placed for the new aircraft two to three years ago start coming in, the airlines are likely to feel further pressure on the load factor.

Shubhra Tandon

Mumbai, June 3

The domestic aviation industry is likely to see more turbulent times ahead. While no respite seems to be coming on the spiralling oil prices, analysts say that addition of capacity in the market in such times is only going to add to the airlines’ woes.

As the orders placed for the new aircraft two to three years ago start coming in, the airlines are likely to feel further pressure on the load factor, say market analysts.

“The capacity induction in the Indian market this year is likely to be in the range of 5-10 per cent,” Mr Ankur Bhatia, Managing Director of the Indian arm of global ticketing major, Amadeus, and Executive Director of Bird Group, told Business Line. The Bird Group is a conglomerate of independent companies involved with automation of the travel industry.

According to Mr Bhatia, this is likely to be an additional burden on the airlines which are already seeing a dip in load factors. “This year, the load factors are likely to be down by 10-15 per cent,” he said.

According to a report on the international traffic data for April, released by International Air Transport Association or IATA on May 29 - “year-on-year the capacity growth of 5 per cent saw load factors fall to 75.4 per cent. This is a 1.5 per cent drop from the 76.9 per cent recorded during the same period last year and the third consecutive monthly year-on-year decline.” However, the report suggests a three per cent year-on-year increase in the international passenger demand.

Slow growth

The Director General and CEO of IATA, Mr Giovanni Bisignani, has been quoted in the report as saying that the “industry outlook is grim at best” given the slowing growth and skyrocketing oil prices. He says that last year the growth was at 6.7 per cent for the first four months. However, it is only four per cent in 2008.

Analysts say it would be too early to predict what does future hold for Indian carriers.

“Apart from the Government support on rationalising of ATF prices, the airlines also need to defer their capacity induction plans. The market will not be able to digest the capacity and there are Indian carriers thinking on these lines,” said an industry analyst declining to give names of the carriers who might defer their fleet expansion plans.

However, Air India and Jet Airways, the two major players in the market, told Business Line that they do not have any plans to defer their current capacity induction plans.

While Jet is set to induct 21 wide body planes till 2014 (three coming in this year), the merged entity Air India will have 111 more aircraft till 2012 of which 32 have been delivered and four to five will come this year.