Air travel unlikely to get any cheaper, says report

A study of the steady increase in airfares this year by an aviation consultancy firm found that domestic carriers were selling tickets way below their operation cost.

A study of the steady increase in airfares this year by an aviation consultancy firm found that domestic carriers were selling tickets way below their operation cost.

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The Centre of Asia Pacific Aviation (CAPA), an aviation consultancy major that conducted the analysis, added that expensive air tickets were largely a reflection of fare corrections by domestic carriers to avoid further losses.

Going by the assessment, the larger concern for air travellers is that despite the fare correction, airlines are still not likely to witness profits. This means that air travel is unlikely to get cheaper in the near future.

“The airline sector has accumulated a loss of US$ 8 billion (approximately Rs5,476 crores) in the last six years. The total debt is US$ 16 billion with virtually no cash in the balance sheet, which shows that airfares are unlikely to drop for a while,” said Kapil Kaul, chief executive officer, CAPA, South Asia.

CAPA’s analysis on the financial health of domestic carriers found that full service carriers reported an estimated loss of US$ 1.9 billion this year at an operating margin of –27%. While their debt positions reached US$ 15 billion, they will have cash to run operations for just 10 days by the end of this financial year.

The report also stated that some of these carriers are facing serious labour problems and some even need to restructure their entire business model.

Although no-frills domestic airlines did marginally better, they too have reported losses of US$ 0.1 billion at an operating margin of –4%.

The report also cited that air tickets sold at heavily discounted rates between 2004 and 2008 were one of the principal reasons behind the downfall.

Airlines also acquired excess aircraft (6 to 6.5 per month, while just three a month was enough to absorb demand) during that period.

Other factors, such as losses owing to fuel wastage at congested airports, deteriorating passenger experience and shortage of manpower worsened their financial health, added the report.