Air traffic plunges to a 5-year low on fuel prices
18 Oct, 2008, 0424 hrs IST,Nirbhay Kumar, ET Bureau Print EMail Discuss Share Save Comment Text: NEW DELHI: Hit by high aviation fuel prices and a meltdown in the financial sector, domestic air traffic has plummeted to a five-year low — traffic declined by a whopping 19% in September 2008. This is the fourth consecutive month of negative growth in air traffic since June. Airline companies, which have been feeling the pinch, are now resorting to large-scale downsizing to cut costs.
Almost all domestic carriers saw their load factor sharply declining during September this year. Faced with further uncertainties, airline companies are rationalising routes, surrendering aircraft and cutting costs. The recent layoff plans by Jet Airways and Kingfisher, and Air India’s plan to offer its staff voluntary leave schemes, only highlights the extremity of the situation.
According to industry sources, Kingfisher Red (formerly Air Deccan) saw the sharpest fall of around 20% in its load factor in September. Air India’s seat factor declined by 10% to 53% during the same period. “The average load factor of airlines came down to 55% in September this year, as against over 65% during the same month last year,” a source said.
The domestic carriers carried about 2.6 million passengers during September 2008 as against close to 3.3 million passengers in the corresponding period last year. The sharp month-on-month fall in air traffic is forcing airlines to reduce capacity and trim manpower. The domestic carriers, which have cut down over 20% of their capacity, are weighing the option to cut more.
The average flight movement has come down to less than 8,000 per week now from a peak of around 10,500 during the April-June period.
Industry experts maintain that the current round of crisis in the domestic aviation sector is severe, but may not continue for long. “The current downturn in the sector is temporary and may not prolong for more than 6 to 9 months,” Boeing vice-president (sales) Dinesh Keskar said.
In a bid to tide over the crisis, two of India’s largest private airlines — Jet Airways and Kingfisher Airlines — have decided to form an alliance for cross-selling of seats, common ground handling and code-sharing. The sector is expected to post a cumulative loss of over $2 billion in the current financial year.
Jet Airways, however, managed to maintain a 64% seat factor during this period, higher than the industry average of nearly 55%. To read business stories in हिंदी click here. Print EMail Discuss Share Save Comment Text:
The Indian aviation sector looks set to shrink amid financial turmoil, with the nation's air carriers in schemes to try and ride out the problems and domestic air traffic at a five year low.

Air traffic has fallen by 19% in September, the fourth month in a row of negative growth. The news comes as a joint result of the current financial crisis and high jet fuel prices, with Indian airlines in debt to the tune of Rs1,800 crore after surpassing their credit limits with oil companies, who are themselves making losses due to government controls on the price of jet fuel.

Kingfisher Red - originally known as Air Deccan, India's first budget carrier, until Kingfisher Airlines bought the company out - suffered the biggest drop in passenger numbers at 20% of their load factor. Flag carrier Air India is running at 53% of capacity after a 10% fall, and the average for airlines is now 55% as opposed to 65% this time last year.

Kingfisher Airlines has decided to enter an alliance with Jet Airlines that will see them collectively control half the Indian aviation market. Both airlines are in debt over fuel payments with Jet owing Rs850 crore while Kingfisher refused to disclose the amount they needed to pay. The money is owed mainly to the Indian Oil Corporation, with the rest owed to the Hindustan Petroleum Corporation and the Bharat Petroleum Corporation. 45% of costs for Indian carriers is fuel, which is 70% more expensive than abroad due to multiple taxes.

Air India's head Raghu Menon expressed concern about what the Kingfisher-Jet alliance meant for his own airline. "We were competing with both these airlines separately. Now we'll be competing with them perhaps as one entity. It'll be a challenge," he said.

Kingfisher have cancelled an order for three A340 aircraft from European airframer Airbus. Airbus executive John Leahy said that Airbus had discussed the issue with Kingfisher before the choice was made and that this was the only cancellation from India. He also maintains that India will be an important area for Airbus, with the firm predicting Indian aviation growth will be at 9.7% compared to a global rate of 5.4%. Airbus predict that 1,000 new aircraft will increase the Indian fleet fivefold by 2026. Airbus have also welcomed the partnership between Jet and Kingfisher, saying it will help consolidate the carriers.

Airlines are cutting capacity to reduce costs, with around 20% gone already. Average flight movements are down to 8,000 a week compared to 10,500 in the period from April to June. The aviation industry in India is expected to post a collective loss of US$2 billion.

One executive at Boeing, Dinesh Keskar , predicted the downfall to be brief. “The current downturn in the sector is temporary and may not prolong for more than 6 to 9 months,” he said. Airlines, however, feel that the risk is very much immediate; Jet and Kingfisher are requesting a government bailout package worth Rs 40.7 billion. They are currently losing a combined US$1.3 billion.