The year 2008 could spell disaster for the global airline industry as a continuous surge in oil prices in a competitive fare regime is making operations unviable and squeezing credit line. Some Indian players may also be vulnerable.
Four airlines, three from the US — ATA Airlines, Aloha Airlines and Skybus Airlines — and Hong Kong’s Oasis Hong Kong Airlines ceased operations in the last fortnight, primarily due to oil prices that exceeded $110 per barrel.
“This year is going to be tough and we can not rule out this (closing down of operations), possibility in India. Weak carriers are more prone,” said Kapil Kaul, CEO-India, Centre for Asia Pacific Aviation (CAPA), a global aviation consultancy. The CAPA had earlier predicted a $700 million combined loss for the Indian airline industry for the year 2007-8.
Jet Airways CEO Wolfgang Prock-Schauer said high jet fuel prices were making operations unviable and the periodical increase in the fuel surcharge was unable to mitigate the extra financial burden. “The fuel surcharges do not recover all the extra outgo on fuel. We are unable to increase fares as some other carriers have unleashed a fare war to fill excess capacity,” he said.
“See what had happened in the mid-1990s. There were so many airlines and most of them closed down,” the Jet Airways CEO said. Last year, Sahara Airlines and Air Deccan were acquired before they ran into serious financial problem.
According to Jet Airways Chairman Naresh Goyal, the “irrational” pricing of domestic air fares would cause a collective loss of $1 billion (Rs 4,000 crore) as airlines start announcing their results.
“Even after sale and lease-back of aircraft, the losses of all airlines from India will be $700 million (2,800 crore). We will also make losses, but our loss will be minimum,” Goyal said.
As domestic yields get squeezed, airlines like Kingfisher, SpiceJet and Deccan are getting restless to fly overseas.