New Delhi: 2014 was an eventful year for the aviation sector in the country, with two new airlines getting licences to fly, a fare war, the humiliating FAA downgrade of Indian aviation safety to Category-II, demise of Kingfisher, near-closure of SpiceJet and Tatas' re-entry into the Indian skies.
However, despite all the gloom and doom, a recent research report by Crisil Research expects some positivity returning to the sector. The Crisil report expects domestic airlines to post an operating profit of Rs 8,100 crore in the financial year FY16, from a Rs 1,500-crore loss in FY14, on the back of an improvement in passenger demand and subsequently passenger load factors (PLFs), a stable rupee-dollar exchange rate and a fall in the crude oil prices.
Here we take a look at some major trends that hold key to growth in the sector:
Jet fuel prices
Though the New Year has begun on a positive note for the domestic airlines, with oil marketing companies reducing jet fuel prices 12.5 per cent, the steepest cut since July 2014, it remains to seen the extent of positive impact it brings to the sector. ATF or Jet fuel prices account for nearly 40 per cent of the operating expenses of airlines.
Flyers hoping for lower airfares in 2015 may have to wait a big longer. Experts say stretched financials of most aviation companies and moderate capacity expansion will support high air fares. Airlines have earlier lost heavily on high fuel prices and exchange factor.
Entry of new airlines
Two new airlines – Air Asia India and Air Costa – have started operations since October 2013 and Vistara - a joint venture between Tata Sons and Singapore Airlines will begin operations on January 9 with its flight from Delhi to Mumbai and Ahmedabad.
AirAsia India is a three-way venture between Malaysia-based AirAsia Berhad, Tata Group and Delhi-based investment firm Telestra Tradeplace launched its maiden flight on June 12 from Bangalore to Goa. Vistara on December 15 received the Air Operator Permit (AOP) or flying permit from aviation regulator Directorate General of Civil Aviation (DGCA). Tata Sons holds a 51 per cent stake in Vistara while the remaining 49 per cent is with Singapore Airlines. Vistara would be third full-service airline in India after state-run Air India and Jet Airways.
Air passenger traffic
2015 will be a big year in terms of air passenger traffic. The Crisil report states the domestic air traffic, which has remained almost flat at about 6-crore passengers over the past couple of years, is expected to reach 7.4 crore by FY16, helped by economic recovery, relatively smaller price hikes and increased connectivity.
In November last year, official data from Civil aviation ministry showed that domestic air traffic logged 14.35 per cent growth as compared to the corresponding period last year. The number of passengers rose to 58.74 lakh as against 51.37 lakh carried by the seven Indian airlines a year-ago.
SpiceJet made headlines in 2014 for the wrong reasons. Kalanithi Maran's Sun group controlled SpiceJet came close to shutting down, but managed to buy more time from the government and the regulator after its co-founder Ajay Singh got involved in talks with the authorities. SpiceJet has bank loans of Rs 300 crore. As per the deal, Ajay Singh, along with two global private equity investors, was likely to invest between Rs 1,200 crore and Rs 1,500 crore to get the carrier back on its feet.
However, recent reports suggest that the deadlock continues as reportedly Maran has refused Singh's proposal. Maran is the largest shareholder in SpiceJet with a 58.46 per cent stake, and has infused more than Rs 1,500 crore into the airline to date.
Notably, SpiceJet has failed to give a comprehensive revival plan to the government so far, even as its dues towards the Airports Authority of India (AAI) mounted to Rs 240 crore. The budget carrier had presented a plan to the civil aviation ministry late last month, but was told to give a revised comprehensive plan with more detail. The airline was expected to include detail on the proposed investments last week, but that has not been presented.
In addition, the airline was adding Rs 1 crore each day in the dues since January 1, on account of landing, parking and route navigation charges, officials say. In the two months leading to the New Year, the airline had cancelled more than 2,000 flights and has delayed salaries in December.
Issues with Air India
There has been no end to Air India's woes. Recently the airline sought the help of the aviation ministry to ensure continuity in fuel supplies after Indian Oil Corp. (IOC) threatened to stop them unless the airline pays its dues, reports suggested. In 2013-14, the airline made a loss of over Rs 5,000 crore on revenues of Rs 17,750 crore, and the situation is unlikely to get better this year.
IndiGo going well
While most airlines continue to suffer losses, IndiGo announced a net profit of Rs. 700 crore, a record in its profitable growth. Given its impressive performance, Qatar Airways has shown interest in buying equity in IndiGo if the Indian carrier offers 49 per cent stake to it, which may also mark the opening up of the Indian aviation market for established airline companies.
Staying afloat in 2015
The financial turbulence being faced by SpiceJet and others demands the removal of systemic weaknesses in the operational environment. To place India's beleaguered aviation sector on a financially sound foundation, the country needs a comprehensive civil aviation policy. With the new NDA government in power, there are hopes that the languishing airline industry in India will see better days.