Airlines rebound as Indians take to skies

Indian low-cost carrier, IndiGo, raised eyebrows in January when it ordered 180 Airbus A320s, the largest single order in commercial aviation industry.

Just two years ago, Indian airlines were rolling in red ink, reeling from the double blow of soaring oil prices, and plummeting passenger numbers, as a result of the global economic crisis.
IndiGo’s ambitious aircraft order – albeit to be delivered gradually between 2016 and 2025 – reflects an industry that is bouncing back and newly confident about its long-term prospects. Indian airlines carried 52m passengers on domestic trips in 2010, an increase of nearly 20 per cent over the 44m passengers they carried in 2009.
Carriers – which aggressively cut capacity in 2009 in response to falling traffic figures – are gradually adding more flights.
“There is absolutely no lack of demand, and as this economy grows, demand for air travel will only increase,” said Vijay Mallya, chairman of Kingfisher Airlines, one of India’s three biggest private carriers. “There is no alternative transportation, no rail or road.”
In 2008-09, Indian passenger traffic fell by 12 per cent as sharp increases in oil prices resulted in increasing ticket prices.

The November 2008 Mumbai terror attacks added to the industry’s woes – struggling carriers reduced capacity as aircraft flew nearly half empty and losses mounted.
“The stress we went through was completely unanticipated,” said Mr Mallya, whose Kingfisher Airlines had started in 2005, expanded aggressively, and became the private carrier hardest hit by the slowdown.
“The events of 2008 and 2009 were beyond the control of any individual airline. But with India’s economic growth accelerating – and oil prices moderating before their recent climb, Indians have been taking to the skies, with passenger load factors now more than 80 per cent – up from about 60 per cent at the depths of the crisis.
Airlines are also gradually increasing their capacity, which rose about 10 per cent in 2010, and will increase further in 2011.
In perhaps the biggest sign of the turnround, airline seats were in such short supply on popular routes during the major Hindu festival season that private carriers sharply increased the prices for last-minute tickets – leading to a firm reprimand from the government.
“We did see the corner turn just before the end of the second quarter,” said Dinesh Keskar, president of Boeing India.
“There is a better balance between capacity and demand for traffic. For the next four to five years, a 15 per cent growth rate is sustainable in Indian aviation.”
The rebound in traffic has bolstered carriers’ bottom lines. Jet Airways has reported five consecutive quarters of profits, including nearly a 12 per cent increase in profits, to Rs1.18bn ($26m), for the quarter ending in December. Improved conditions – and Indian central bank leniency – also helped Kingfisher Airlines to reach a deal with its creditors, including state banks, to restructure its estimated $1.3bn in debts, with about $445m converted into equity, interest rates reduced, and repayment period extended to nine years – relief Mr Mallya called “substantial”.
Kingfisher reported this month that it narrowed its net third-quarter losses by 40 per cent, to Rs2.54bn, with a sales increase of 22 per cent.
IndiGo – whose media-shy owners are believed to be preparing for the public listing of the carrier – does not release any public financial results.
But the airline had India’s highest capacity utilisation rate of 88 per cent in January, and said in a recent statement that its order of 180 aircraft “reaffirms IndiGo’s commitment to the long-term future of the market.”
But airlines cannot afford to be complacent. Indian travellers remain notoriously price sensitive, with about 70 per cent of all domestic air travel on low-fare airlines.
If the current Middle East turmoil keeps oil prices above $110 per barrel for too long, it would force air fares up, hitting growth and eroding profitability.
Indian airlines are also struggling to keep pace with demand growth in another area – finding enough experienced pilots to manage their expanding flight schedules. For now, foreign pilots are making up the shortfall, with the reluctant consent of India’s government.