Bigger airlines lose passengers as rising fuel costs push up fares

June 1st, 2008 - 4:48 pm ICT by admin  

By Varada Bhat and Sanjay Singh
Mumbai/New Delhi, June 1 (IANS) Bigger airliners are losing passengers to smaller players after soaring aviation fuel costs forced carriers across board to hike fares over the past year. Airfares, which have gone up by over 18 percent this year, are likely to rise further after fuel prices were hiked by about 19 percent Saturday. According to industry sources, fuel prices have risen between 30 to 43 percent in the past year, and now costs Rs.71,759.06 ($1,685) in Mumbai and Rs.69,227.08 ($1,625) in New Delhi.

And that is hitting the more expensive carriers.

Figures released by the Directorate General of Civil Aviation (DGCA) for last year show the consolidated share of the low-cost carriers (LCCs) such as IndiGo, SpiceJet and GoAir has gone up to 22 percent from 12 percent in 2006.

“The figures will go higher this year,” a SpiceJet official predicted. “We have over 82 percent flight occupancy.”

A report by a Citigroup analyst says the number of corporate travellers has already risen to 38 percent now and is expected to touch 45 percent. “Many business travellers are now migrating from full service airlines to budget airlines,” said the report.

But with fuel accounts for the bulk of a carrier’s operating expenses, profitability is being whittled away, and the Delhi-based SpiceJet says it would be impossible for it to break even before 2009-10.

“Fuel accounts for more than 50 percent of our total costs currently,” SpiceJet chief finance officer Partha Sarathi Basu told IANS. “Last year, it was 40 percent.

Along with airlines companies, their shareholders too are being hit, as aviation stocks in general have plummeted in the past six months.

Jet Airways shares tumbled to Rs.537.70 on May 30; the scrip was trading at Rs.1020 in early January.

Deccan Aviation - the budget carrier now integrated with Vijay Mallya’s Kingfisher, closed at Rs.115.85 Friday, compared to Rs.142 in April. SpiceJet shares closed at Rs.32.50, against Rs.104.50 some five months ago.

“Airline stocks are susceptible to movements in the energy market because fuel is a major component of an airline’s running costs,” investment advisor S.P. Tulsian told IANS.

It’s a situation not unique to the Indian bourses these days, an analyst with broking firm Prabhudas Liladhar said.

The largest US carrier, American Airlines, has seen its stocks falling after rising fuel prices forced it to cut capacity by 11-13 percent, and scrap several services, the analyst said.

Earlier this week, Australia-based Qantas Airways cut the overall capacity by around five percent and froze executive pay. In the US, no-frills airline JetBlue has delayed taking deliveries of some 21 aircraft to preserve liquidity.

Experts say there could be another fallout: major carriers will move away from ultra-cheap fares and focus on smarter routes and fare-planning for better yields.

For instance, a survey conducted by the American Express Business Travel Monitor, Asia Pacific, says discount economy fares have already decreased 11 percent in recent months.

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