A Case Study
There has been much debate over where really lies the problem with the airlines sector. Full service airline providers are posting losses year on year while low cost carriers seem to be posting some profits. Airlines companies in India together posted a record net loss of 44% in the last fiscal year. This is much higher compared with any y-o-y losses seen in the past by this evolving industry.
Full service airlines are working to being down their cost available per seat km. According to a recent study, this cost for full service airlines has come down from Rs. 4.60 has fallen down to Rs. 3.02. Whereas, this cost for low cost carriers is Rs. 2.40. While all airlines are working to cut their costs, full service airlines are unable to do it to the extent LCCs are. Airlines claim that steep aviation turbine fuel prices and expensive airport charges in the country are the primary cause for their losses. Aviation turbine fuel prices are very high in India compared with other countries in the world. Even so, they have substantially gone down over the last year from Rs 71,028 a kilolitre in August ’08 to Rs 36,992 a kilolitre in the same month of 2009. The flipside is that most full service airlines in India also run international routes. Fuel used on international flights is available at international prices. This gives the companies some leverage in terms of fuel price as well. Are full service airlines conveniently ignoring this fact?
In the last quarter, Kingfisher posted a loss of Rs 243 crores in the quarter ending June 2009, whereas Jet Airways said it suffered a loss of Rs 225 crores. Contrarily, budget carrier SpiceJet recorded a profit of Rs 26 crores. So while Jet Airways revenue slipped 18 per cent compared to the same quarter last year, SpiceJet revenue went up by 15 per cent. Fuel costs and airport charges remaining constant, there seems to be a huge gap somewhere. A cursory look implies it is not so much the airline industry that is suffering, but the full service airline companies that are really facing the music.
What remains true is that these airlines are posting losses on a yearly basis. Kingfisher losses rose from Rs 158 crore in the quarter ended June 2008 to Rs 243 crore in the same period in 2009. Jet Airways posted profits of Rs 143 crore in this period in 2008, while they suffered losses of Rs 225 crore in this period in 2009. The picture with low cost carriers was different during this period. SpiceJet revenues, for instance, saw an upwards trend. While they posted losses of Rs 129 crore in the June 2008 quarter, they had profits of Rs 26 crore in that quarter of 2009.
All these arguments point towards one straight fact. Airlines that are working on controlling their costs take the lead over competitors. Most have excessive capacity while customer traffic has gone down drastically. This is leading to tremendous suffering for airlines that worked full capacity till recently. Also, Indians are keen to travel for as little as possible. A high percentage of travellers prefer low cost carriers to full service airlines. This is turning out to be the greatest challenge for full service airlines. Where Air India and Jet Airways had a passenger load of 68% approx. for the quarter June 2009, Kingfisher had a passenger load of 72%. SpiceJet surges ahead of all these carriers to maintain a passenger load of about 77%, while GoAir and IndiGo take a passenger load of 85% and 82% respectively.
The most stunning proof of these developments is that while low cost carriers are adding to their fleet and routes, full service airlines are reducing their capacities. There are some means airlines such as Air India, Kingfisher and Jet Airways have to come up with to beat these circumstances. Because low cost airlines are here to stay.
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