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India’s airlines seek major cost cuts
August 30, 2018
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MUMBAI: Bargain-basement fares, high oil prices and a tumbling rupee are causing turbulence in India’s hyper-competitive aviation sector, virtually wiping out airlines’ profits and leaving them scrambling to cut costs to survive.

India’s aviation sector is expected to become the world’s third-largest by 2025, with passenger numbers increasing six-fold over the past decade as a growing middle class take advantage of better connectivity and inexpensive flights.

But experts warn cheap tickets and an over-reliance on favourable fuel pricing is unsustainable.

India’s top two airlines by market share, IndiGo and Jet Airways, and debt-laden state carrier Air India are all suffering financial woes, while SpiceJet’s chief has said the industry is in “great stress”.

“The rise in the price of Brent fuel, a depreciating Rupee and a resulting mismatch between high fuel prices and low fares have adversely impacted the Indian aviation industry, including Jet Airways,” Jet CEO Vinay Dube said this week.

Brent crude has risen 50 per cent over the past year, while the impact has been exacerbated by the rupee recently touching a record low of 70 to the dollar.

HIGH FUEL TAX

Then they must pay taxes of up to 44 per cent on jet fuel, the highest in Asia according to Bloomberg News, all the while stumping up billions for new planes to keep up with passenger demand.

On Monday, Jet Airways reported a loss of Rs13.23 billion ($189 million) for the three months ended June 30, compared with a profit of 535 million Rupees for the same period a year earlier.

“The key challenge faced by Indian airlines is on the cost front as 60-70 per cent of expenditure is exposed to fluctuations in oil prices and currency markets,” Binit Somaia, South Asia director at the Centre for Aviation (CAPA), told AFP.

Millions of dollars have been wiped off the value of Jet’s stock this year and its financial situation has been the subject of furious speculation in Indian media in recent weeks.

That intensified after the carrier failed to release its first-quarter earnings as scheduled earlier this month, before finally releasing them on Monday showing a second successive loss.

In July, it denied a report in the Economic Times that it needed to make major cost cuts or face having to shut down operations within 60 days.

But the carrier announced with its earnings Monday that it would implement a “comprehensive cost reduction programme” amounting to 20 billion Rupees over the next two years and seek investment to help turn around its fortunes.

“Airlines can’t solely rely on oil prices being low to bring in profitability. They need to be careful with pricing and manage costs better,” said Amrit Pandurangi, an independent aviation expert.

Jet’s struggles are not unique.

IndiGo’s profits plunged 97 per cent on-year in April-June, sending its stock plunging.

And Air India, once the country’s monopoly airline and known affectionately as the “Maharaja of the skies”, has been haemorrhaging money for years and losing market share to low-cost rivals.

Agence France-Presse

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