Airlines may cut more flights to fight ATF costs

Anirban Chowdhury & Manisha Singhal / New Delhi/Mumbai June 16, 2008,

The airline industry said it would consider deeper cuts in flights and routes to counter rising aviation turbine fuel (ATF) costs and falling passenger growth as a result of rising fares.

This is one of the key decisions taken at a five-hour meeting among airline chiefs Friday, including Kingfisher's Vijay Mallya, Jet Airways' Naresh Goyal, GoAir's Jeh Wadia and SpiceJet CEO Siddhanta Sharma under the umbrella of the Federation of Indian Airlines (FIA).

Meanwhile, the civil aviation ministry has agreed to request state governments to reduce sales tax when the empowered committee of state finance ministers meets on Monday in New Delhi.

State sales tax ranges from 4 per cent to 35 per cent and makes ATF in India one of the most expensive in the world — it accounts for almost half an airline's operational costs in India against a global average of 20 to 25 per cent.

The government's decision to raise ATF prices over 18 per cent last month has forced some airlines to raise fares around 10 per cent, signalling an end to the cheap fare era and rapid growth in passenger traffic.

Low-cost carriers have been holding the price line, but this could severely dent their profits. Most airlines are already reporting losses and the industry is expected to lose $2 billion by the end of this financial year owing to aggressive pricing.

"If for some reason the government is not able to accede to our demands then we have no other option but to cut flights drastically and the connectivity will suffer," said Kingfisher promoter Vijay Mallya, who chairs the FIA.

Airlines have already started cutting back. GoAir, for instance, has opted out of flying to Jaipur and plans to cut shorter-haul flights from Bangalore and Hyderabad and opt for more long-haul flights. Company executives were not available for comment.

By September Jet Airways is moving out of numerous routes that will be serviced by its value airline JetLite, formerly Sahara Airlines, which it acquired last year. These include routes like the entire north-east and Jammu & Kashmir sectors and destinations like Port Blair.

"We have started by taking over low-cost sectors like Chennai-Pune and Chennai-Port Blair, among others," said Rajiv Gupta, COO of JetLite.

Meanwhile, JetLite also stopped operating flights in sectors like Delhi-Chandigarh, Ahmedabad-Jaipur, Mumbai-Bhuj and Hyderabad-Bangalore and will cut ten more in the next month.

The aim is to reduce the number of flights between Jet and JetLite by 20 per cent, sources in the airlines said.

Rival carrier Kingfisher has also decided to cut domestic capacity 15 to 16 per cent, said Rajesh Verma, executive vice-president, Kingfisher Airlines.

Senior executives in the company added that like Jet, Kingfisher would also rationalise routes with Simplifly Deccan, which it bought late last year.

"We are becoming one company in a week, so we will definitely look at synergising routes," said a senior company executive.

SpiceJet, which saw average load factors drop 7 to 8 per cent over last year, will cut daily flights from 117 to 100 by next month. SpiceJet's Sharma said this would increase average load factor 2 to 3 per cent and yields per passenger by Rs 70.

Airlines are also urging the ministry to negotiate with the private operators to reduce the parking and the landing charges levied at the new airports and allow the airlines to do their own ground-handling instead of using agencies appointed by the airport operators.

Source : The Business Standard