Tuesday, September 23, 2008


The state of the global economy, the rise in the price of crude, the dropping profit margins of companies, and the notional drop in the asset prices of individuals has had its negative effects on the aviation sector globally and in India too. Aviation is the first sector to be hit when there is financial insecurity and the notional prices of assets like real estate and equity plunge. All our airlines are bleeding and loosing large sums of money even after the drive to cut flights and get the supply of seats in line with the demand.
The newspapers this morning reported that Kingfisher is cutting jobs, mostly employees of the erstwhile Air Deccan. Kingfisher has also deferred the planned delivery of their aircraft. Jet Airways is also cutting jobs, again mostly employees of erstwhile Air Sahara. Spicejet had already decided to delay induction of new aircraft and have been in the process of leasing out some of their available aircraft. They had laid off 30 pilots sometime back and are now giving a one-way ticket to their expat pilots proceeding to their countries. Go Air had already cut back on flights and aircraft. There is no news on Indigo in the open press and so it is very difficult to fathom what is going on there. However, they could not be in any better state than the others. Air India has had huge losses and has asked the government for a bailout.
Situation looks very fragile. Kingfisher has asked the government for permission to import Aviation Turbine Fuel (ATF) as the prices in India are way too high compared to other countries in the world, due primarily to our tax structure. Hopefully these measures would help the airlines cut some of their losses. Returning to profitability though may take some more time and depends on when companies and individuals feel secure and start to travel by air again, at the new ticket prices that are substantially higher than the ticket prices that had been prevailing for the past few years. Airlines will have to look for newer and more innovative ways to increase revenues and cut costs, just to stay solvent. Any ideas????? Two areas that readily come to mind are, one, the MRO business and secondly, the training business. Instead of laying off surplus staff, some of the airlines have the capability to run these complementary businesses. These are businesses that are evergreen as long as there are aircraft flying around. India can operate these businesses cheaper than the other countries, as our manpower in the present circumstances would come at a much lower cost.

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