BANGALORE, India (AFP) -Indian air travel may be booming, but the country’s airlines are deep in the red, suggesting closures, mergers and acquisitions are inevitable, according to an industry report.
India’s air carriers are expected to post a combined loss of about 500 million dollars in the year ending March 31, said the report, which predicted another loss in the year ahead as airlines induct more planes and cope with a shortage of infrastructure and skilled employees.
The report, Indian Aviation: Overview and Outlook, was prepared by the Centre for Asia Pacific Aviation and the Federation of Indian Chambers of Commerce and Industry. It was released at the Indian air show ending in Bangalore Sunday.
“India’s aviation sector is filled with great promise and is accelerating quickly after years of inertia,” the document said. “The potential is huge, trips per capita remain low, while economic growth is racing towards 10 percent per annum.”
“But… pricing remains unviably low, leading to huge losses by all airlines,” it said, predicting a return to profitability not before the third quarter of the fiscal year ending March 31, 2009.
From just three in 2003, the number of airlines in India has jumped to 10, with several low-cost carriers joining the fray to profit from a boom in air travel that is expected to more than double the domestic market size to 60 million passengers by 2010.
Jet Airways, Indian Airlines and Air Sahara have been joined by Air Deccan, Kingfisher Airlines, SpiceJet, Paramount Airways, Go Air, IndiGo and Indus Airways, with more such as Easy Air, Trans India and Air Dravida seeking government approval to take to the skies.
Competition has caused the cost of air travel to fall as airlines cut fares to lure passengers. That has fuelled market growth while squeezing profitability.
“It is extremely difficult for a market to absorb this many new entrants, particularly in such a short space of time, and during a period when there are a number of external issues — airport infrastructure and manpower shortages — that serve to increase costs and reduce efficiency,” said the aviation outlook.
“This is compounded by the fact that airline management in some cases is relatively inexperienced and untested.”
The industry will consolidate through closures and mergers to around two-to-three full service carriers, three-to-four large national low-cost carriers with more than 70 aircraft each and three-to-four small regional operators, the report said.
“The merger of the two state-owned carriers, Air India and Indian Airlines, which is due to be approved by March 31, will set the ball rolling for further consolidation and mergers and acquisitions,” it predicted.
India’s airlines have expanded aggressively in recent years, with about 480 aircraft on order for delivery through 2012. The induction of new planes, with 135 aircraft added in the past two years, is straining airport infrastructure and also driving demand for pilots who are in short supply.
By 2020, India’s aviation sector has the potential to absorb as much as 120 billion dollars of investment, with aircraft orders accounting for 80 billion dollars of that, the industry report said.
Airport investment could reach 30 billion dollars, it said, predicting the number of domestic passengers would jump to between 150 million and 180 million by 2020.