After a rather disappointing & loss-plagued 2009, the year ahead will mark a turnaround in the books of the Indian aviation industry. Steven Philip Warner explains…
Call it the past-eraser. Can an individual go back in time, erase his complete past, and come out happier than ever before? The majority would affirm that the answer to that question depends on which individual are we talking about. Only a few would say that the answer depends upon whether such a time machine could exist at all. Fewer still would be intelligent enough to sidestep the complete waste of a question. Being the bard to the fool, the down-in-the-dumps Indian aviation sector has been more than happy to be ‘the’ individual in question! Given a chance, the Indian aviators would attempt precisely what the question portends – to wipe out all the inane decisions that they bet on a few years back!
Yes, the nation grew, and so did the domestic sector post-liberalisation, from 3 million passengers in 1993 to 44.5 million in 2009. But if footfalls had meant profits all the time, even beggars would have been flaunting their flying licenses! Much before slowdown cast its shadow on the global economy, the domestic aviation sector had started rotting; and right from the top! One strategic blunder led to another – illogical fleet and geographical expansions, grossly miscalculated mergers, fractured infrastructure and over-staffing culminated into capacities outrunning logical demand, on the back of ever-growing ambitions of the airline companies. And this is how the numbers appear today: after amassing more than Rs.190 billion in losses in the three years leading to FY2008-09, the boardrooms of airline companies conspired in tandem to rock the flying ships of investors further with predictions of another Rs.70 billion in losses during 2009 (as predicted by the Centre for Asia-Pacific Aviation, CAPA). CAPA further mentions that the big three (Air India, Jet Airways and Kingfisher Airlines) accounted for losses of almost Rs.230 billion [$5.1 billion] during the same period. Estimates for losses for the current financial year are to the tune of Rs.65-70 billion [about $1.6 billion].”
Three and a half years back, Business & Economy had warned about the manner in which unsound pricing policies were preparing grounds for players in the domestic sector to end up underwater. It finally happened in 2009, when everything including passenger volumes (the last hope) went against the domestic airlines. Barring only one domestic carrier – IndiGo – all others posted losses for FY2008-09, with the big three, which together accounted for 59.4% of the domestic market share in 2009, posting the biggest annual losses totalling Rs.76.34 billion. The low cost carriers also lost money, with SpiceJet & GoAir reporting negative bottomline figures of Rs.3.53 billion & Rs.225 million respectively. l.
So after a loss-splattered 2009, all questions that arise about the immediate year ahead is simply answered in a one-line poser – how further than the ocean bed can you sink?
After a disaster-struck 2009, it’s not difficult to imagine an improved year ahead; rather a ‘different’ one, when the very structure and composition of the sector would undergo a steady transformation into becoming more of a low-cost strategy dominated market. Strangely, an operating model which was non-existent in the Indian market until six years back, could account for almost 70% of domestic capacity within the next two-three quarters. This is due to the decision taken by carriers such as Jet and Kingfisher to reconfigure the majority of their domestic aircraft to operate all economy, no-frills service. Air India is also planning to follow suit. As the Indian Aviation: Outlook for 2010 report mentions, “There has been a clear recognition that there is a limited market for full service travel, particularly business class, beyond the key metro routes. Full service may in future be restricted to just a handful of services, or may even disappear entirely.” Today, big players like Kingfisher and Jet are already operating about 70% of their capacity in the budget model. Therefore, by the end of 2010, these two players will quite possibly become the two largest LCCs in the market.The transition to lower cost operations should allow the big-3 carriers to develop a more competitive cost structure, which is essential for survival. Jet Airways and Kingfisher are both faced with a cash crunch and urgently seeking to capital.
Though high debt and fuel price fluctuation (which had fallen to stable levels during 2009) remain two big concerns for 2010, Indian private domestic airlines are expected to make a combined profit of $250-300 million (Rs.11.43-13.71 billion) during the coming financial year FY2010-11, with Kingfisher Airlines likely to break even in Q3, 2010. Even a January 2010 report, by Centrum Broking, predicted Jet’s return to profits (of Rs.140 million) in Q3, 2010 as opposed to a negative Rs.2.14 billion in the same quarter in 2009. SpiceJet’s operational performance is also forecasted to improve by FY2010-11. Currently, the Indian aviators have a combined debt in excess of $10 billion, and they would need urgent capital raising of up to $12 billion over the next 2-3 years to finance aircraft deliveries (with a need to increase equity by $1.2 billion over the next 3-6 months). But with global sentiments improving and investors mushrooming thick and fast, this shouldn’t prove too difficult.
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Call it the past-eraser. Can an individual go back in time, erase his complete past, and come out happier than ever before? The majority would affirm that the answer to that question depends on which individual are we talking about. Only a few would say that the answer depends upon whether such a time machine could exist at all. Fewer still would be intelligent enough to sidestep the complete waste of a question. Being the bard to the fool, the down-in-the-dumps Indian aviation sector has been more than happy to be ‘the’ individual in question! Given a chance, the Indian aviators would attempt precisely what the question portends – to wipe out all the inane decisions that they bet on a few years back!
Yes, the nation grew, and so did the domestic sector post-liberalisation, from 3 million passengers in 1993 to 44.5 million in 2009. But if footfalls had meant profits all the time, even beggars would have been flaunting their flying licenses! Much before slowdown cast its shadow on the global economy, the domestic aviation sector had started rotting; and right from the top! One strategic blunder led to another – illogical fleet and geographical expansions, grossly miscalculated mergers, fractured infrastructure and over-staffing culminated into capacities outrunning logical demand, on the back of ever-growing ambitions of the airline companies. And this is how the numbers appear today: after amassing more than Rs.190 billion in losses in the three years leading to FY2008-09, the boardrooms of airline companies conspired in tandem to rock the flying ships of investors further with predictions of another Rs.70 billion in losses during 2009 (as predicted by the Centre for Asia-Pacific Aviation, CAPA). CAPA further mentions that the big three (Air India, Jet Airways and Kingfisher Airlines) accounted for losses of almost Rs.230 billion [$5.1 billion] during the same period. Estimates for losses for the current financial year are to the tune of Rs.65-70 billion [about $1.6 billion].”
Three and a half years back, Business & Economy had warned about the manner in which unsound pricing policies were preparing grounds for players in the domestic sector to end up underwater. It finally happened in 2009, when everything including passenger volumes (the last hope) went against the domestic airlines. Barring only one domestic carrier – IndiGo – all others posted losses for FY2008-09, with the big three, which together accounted for 59.4% of the domestic market share in 2009, posting the biggest annual losses totalling Rs.76.34 billion. The low cost carriers also lost money, with SpiceJet & GoAir reporting negative bottomline figures of Rs.3.53 billion & Rs.225 million respectively. l.
So after a loss-splattered 2009, all questions that arise about the immediate year ahead is simply answered in a one-line poser – how further than the ocean bed can you sink?
After a disaster-struck 2009, it’s not difficult to imagine an improved year ahead; rather a ‘different’ one, when the very structure and composition of the sector would undergo a steady transformation into becoming more of a low-cost strategy dominated market. Strangely, an operating model which was non-existent in the Indian market until six years back, could account for almost 70% of domestic capacity within the next two-three quarters. This is due to the decision taken by carriers such as Jet and Kingfisher to reconfigure the majority of their domestic aircraft to operate all economy, no-frills service. Air India is also planning to follow suit. As the Indian Aviation: Outlook for 2010 report mentions, “There has been a clear recognition that there is a limited market for full service travel, particularly business class, beyond the key metro routes. Full service may in future be restricted to just a handful of services, or may even disappear entirely.” Today, big players like Kingfisher and Jet are already operating about 70% of their capacity in the budget model. Therefore, by the end of 2010, these two players will quite possibly become the two largest LCCs in the market.The transition to lower cost operations should allow the big-3 carriers to develop a more competitive cost structure, which is essential for survival. Jet Airways and Kingfisher are both faced with a cash crunch and urgently seeking to capital.
Though high debt and fuel price fluctuation (which had fallen to stable levels during 2009) remain two big concerns for 2010, Indian private domestic airlines are expected to make a combined profit of $250-300 million (Rs.11.43-13.71 billion) during the coming financial year FY2010-11, with Kingfisher Airlines likely to break even in Q3, 2010. Even a January 2010 report, by Centrum Broking, predicted Jet’s return to profits (of Rs.140 million) in Q3, 2010 as opposed to a negative Rs.2.14 billion in the same quarter in 2009. SpiceJet’s operational performance is also forecasted to improve by FY2010-11. Currently, the Indian aviators have a combined debt in excess of $10 billion, and they would need urgent capital raising of up to $12 billion over the next 2-3 years to finance aircraft deliveries (with a need to increase equity by $1.2 billion over the next 3-6 months). But with global sentiments improving and investors mushrooming thick and fast, this shouldn’t prove too difficult.
Read more....
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
Prof. Rajita Chaudhuri's Website
domain-b.com : IIPM ranked ahead of IIMs
Arindam Chaudhuri's Portfolio - he is at his candid best by Society Magazine
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
IIPM B-School Detail
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
Prof. Rajita Chaudhuri's Website
domain-b.com : IIPM ranked ahead of IIMs
Arindam Chaudhuri's Portfolio - he is at his candid best by Society Magazine
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
IIPM B-School Detail
