INDIA: Heavy turbulence for India’s air sector

India’s rapid airline sector growth has hit a major snag as surging fuel prices are plunging the nascent industry into massive losses. The country’s carrier shave racked up a combined loss of US$938 million in the fiscal year to March 2008 with aviation officials from the Indian government saying this figure could well double this […]


India’s rapid airline sector growth has hit a major snag as surging fuel prices are plunging the nascent industry into massive losses. The country’s carrier shave racked up a combined loss of US$938 million in the fiscal year to March 2008 with aviation officials from the Indian government saying this figure could well double this year if oil prices climb unabated.

The forecast represents nearly a third of total global losses of US$6.1billion projected by the International Air Transport Association last week ifoil stays around US$135 per barrel until year-end.

“Aggressive consolidation is inevitable… there will be exits, strategic alliances, airlines will have to work outhow to share resources and rationalise route networks so carriers complement each other rather than compete,” said the head of the Centre for Asia Pacific Aviation in India, Kapil Kaul.

The industry has already seen some consolidation in the past couple of years, with the mergers of state-owned carriers Indian and Air India and acquisitions of low cost carrier, Air Sahara, by Jet and low-cost Deccan by Kingfisher.

With the global oil price surging, airlines have increased their fuel surcharge five times during the past five months. Even with the fare increases, jetfuel now accounts for nearly 50 per cent of operating costs.

The sector’s problems have been aggravated by poor airport infrastructure and shortage of qualified staff.

Aviation Minister Praful Patel warned last week, as he pushed for a government emergency package to support the industry, that its “growth story is now at a crossroads. It is a matter of time before this dynamic sector becomes unhealthy.”

Kaul added that, in the short term, thesector’s problems could mean deferment of purchases of 25 to 30 aircraft this year, mainly in the narrow-bodied segment.The committee has been asked to submit its recommendations as soon as possible. The decision was welcomed by Patel who is widely credited with freeing up the Indian aviation sector enabling itto grow.