The Telegraph
Monday , June 16 , 2014
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Newbies threaten aviation turf war

New Delhi, June 15: The entry of new carriers AirAsia India and Tata SIA is likely to intensify the price war in the sector.

Malaysia-based carrier AirAsia launched its Indian arm last week, pricing tickets at so low that existing players had to come up with matching offers in the peak holiday season — a time when they try recover their losses.

Mittu Chandilya, chief executive officer of AirAsia India, had earlier said his vision was “to change the way people travel in India”, and make AirAsia India “the biggest airline” in the country. “We are trying every day to reduce the fares,” Chandilya said.

Analysts fear the price war will further intensify when AirAsia expands its fleet by July-September, bleeding the already loss-laden carriers.

Last year, the industry witnessed combined losses of over Rs 7,600 crore, with some of the leading players ending in the red.

The Federation of Indian Airlines, a trade body of existing airlines, had made a final appeal early this month to the new BJP-led government to stop AirAsia.

“While foreign investment needs to be encouraged, the same cannot be at the cost of the domestic industry,” said the federation’s associate director Ujjwal Dey.

Some others, however, view this as an opportunity for the industry to grow.

“The woes of the existing players cannot be saddled on new entrants. Markets will expand and airlines should concentrate on smaller airports as the next wave of traffic will come from these towns. Also, the new government should look into the high taxes and aviation turbine fuel (ATF) charges. They need to be lowered if they want the country’s airlines to come out of the rut,” Dhiraj Mathur, leader (aerospace and defence) of PwC India, said.

According to Mathur, existing airlines should focus on financial and operational restructuring rather than worry about new entrants.

Air India, Jet Airways and SpiceJet had reported combined losses of Rs 7,615 crore for 2013-14. According to a report by international aviation body Centre for Asia Pacific Aviation (Capa), India’s airlines have accumulated losses of more than $10 billion over the past few years. Besides, their combined debt stands at around $20 billion.

Capa says if the aviation sector wants to stay afloat, it will need at least $1.3 billion in fresh capital this year.

Naresh Goyal-led Jet Airways posted its biggest-ever quarterly loss of Rs 2,153.6 crore for the three-months ended March 31, 2014. It had reported a loss of Rs 495.5 crore in the same quarter the previous fiscal.

Jet Airways lost Rs 4,129.7 crore in 2013-14 (its seventh straight annual loss) against a loss of Rs 779.8 crore in the previous fiscal.

According to SpiceJet executives, the airline is losing Rs 2.75 crore every day.

The airline needs to raise at least Rs 1,200 crore to stabilise operations, according to Capa.

Air India, however, has managed to report lower losses this year. The national carrier’s annual operating loss stood at Rs 2,123 crore against Rs 5,200 crore in 2013-14.

IndiGo is likely to post lower-than-expected profits, while GoAir may break even with nominal profits. The two airlines, which are not listed on the bourses, do not announce their numbers.