The Hindu Business Line : ‘Fares may be cut if aviation fuel gets declared goods status’

Mumbai, Feb 20 Aviation sector has run into turbulent weather with the global economic meltdown. The load factor (passenger occupancy) on both the domestic and international routes seems to be tumbling faster than the aviation fuel prices, which was the only burning issue till recently.

Airlines across globe are grounding aircraft, trimming routes and cutting staff strength, besides exploring innovative measures to stay put in business. The domestic demand may have ring-fenced India aviation to an extent, but the already bleeding airlines are in no mood to be complacent. So far, so good, but nobody knows how long the current financial crisis will extend and its real impact on Indian economy, said Mr Naresh Goyal, Chairman, Jet Airways, in an interview to the Business Line in Kuala Lumpur, Malaysia.

The Director General of Civil Aviation and Monopolies and Restrictive Trade Practices Commission have recently served notice on cartelisation. Have you responded?

Yes, we have sent our reply saying that there is no question of cartelisation in fixing prices. In the first place, we have not increased our apex fares at all. Fares are always cheaper if booked in advance and becomeexpensive closer to the day of travel. All the airlines follow this policy on fares and we are no different. One should understand that it has proved beyond doubt that reduction in fares does not necessarily mean more passengers.

Cost of aviation fuel has come down drastically in the last few months. Is there a scope for reducing fares?

Every airline in the country is running at a loss even after the fall in aviation fuel prices. There are about 35-40 per cent excess capacity and almost all the airlines are selling tickets below cost. Airlines cannot run in losses for too long. Having said that, there is a possibility that prices may come down if the Government assigns declared goods status to aviation turbine fuel. The move will result in a uniform four per cent tax across states.

What are the measures you are taking to reduce losses? Is cutting staff an option?

No, we have no proposal to cut staff. In fact, we have reinstated all the temporary staff and accommodated them by implementing various measures such as reducing flying hours and training them in other fields. Except for Mumbai-Shanghai-San Francisco, we have not discontinued any foreign routes. We have managed to reduce about 20 per cent of domestic capacity in the last few months by using smaller aircraft. In the New York route, we have deployed smaller 220-seat A330-200 aircraft instead of the 312-seat Boeing 777-300ER. Any unutilised capacity will be leased out.

Given the over-capacity, will you delay taking delivery of new aircraft?

We have already leased out three Boeing 777s to Turkish Airlines, two A-330s to Gulf Airlines and are in talks with Oman Airways to lease out another two aircraft. We will also reschedule taking delivery of Boeing 777-300ER aircraft. We will receive three ATRs between May and September 2010.

Given the current liquidity constraints, promoters of big corporate houses have pledged their shares to raise money. Have you tapped this opportunity?

No, promoters hold about 80 per cent in the company and have not pledged any shares to raise money.

You already have a code sharing agreement with Malaysia Airlines which is setting up a MRO (maintain, repair and overhaul) in joint venture with GMR in Hyderabad. Will you participate in the JV?

We have a close relationship with Malaysia Airlines. We will be playing the role of anchor tenant. As most of our aircraft are serviced by Malaysia Airlines in Kuala Lumpur we will save a lot in cost and time if they set up an MRO in India. The MRO will be able to handle all types of aircraft, from light jets to super-jumbos such as the A380.

Have you realised the benefits of tie-up with Kingfisher Airlines? What is the current status?

The first phase of the tie-up is taking off well. Both of us were able to save cost relating to ground handling besides jointly negotiating better rates for contracts of various facilities at airports.

On the commercial aspect, we have to be more careful so that we do not run into regulatory hurdles.

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‘Fares may be cut if aviation fuel gets declared goods status’