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http://www.dnaindia.com/report.asp?NewsID=1028491
Airlines are happy
with pie in the sky
Praveena Sharma
<What commercial logic is driving businessmen to aim for a piece of the
Indian sky?
"There is still a huge untapped potential in this sector. Today, all Indian
airlines put together are serving only around 25 million passengers annually
in a country with a population of over 1,000 million. They are catering to
only 2.5% of the population. Singapore Airport alone handles over 32 million
passengers while Europe's largest low-cost airline, RyanAir, flies over 38
million passengers. So, you can imagine the potential that is waiting to be
tapped in India," says Air Deccan managing director GR Gopinath. >
< According to figures put out by the Centre for Asia Pacific Aviation
(CAPA), India's air traffic in the domestic sector grew from 19.5 million in
the last fiscal (2004-05) to 25 million this fiscal. This is a growth of
28%. And, according industry players, this is just the beginning. They say
this level of growth is sustainable for at least the next five years.>
<CAPA chief executive Kapil Kaul says that the current average margin in the
aviation industry ranges from 4% to 8%. "Indian companies, however, are
still far away from profitability. Except for Jet, which has been
consistently making profits since its inception, none of the others are
making profit," says Kaul.
Industry experts say that operating margins in the airline business do not
tend to be huge, but on high volumes even small margins translate into
substantial profits. And these profits are proportional to the shortfall in
capacity. Most airlines make their best profits when this gap between demand
for airline seats exceeds supply. At present, India is passing through that
phase.
Rising income is swelling demand for air travel. Airlines are trying to fill
the supply gap by expanding their seat capacity. Over the last one year,
Indian carriers have ordered over 300 aircraft. Despite such orders, India's
fleet strength would still lag behind China's fleet of 1,000 aircraft.>
<One result has been a pushback in the breakeven dates of many start-ups.
Take the case of SpiceJet, which was expecting to break even with 7-8
aircraft. Now that competition has intensified, its gestation period has got
stretched.
According to Air Deccan's CFO Mohan Kumar, it takes about one year for any
particular flight route to become profitable. Air Deccan currently makes
money on only 60 of its 250 flight[routes]s. >
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Let's hope Goa is one of them! Let's also hope that supply catches up with
demand on this route. But for that to happen the Navy has to release its
stranglehold on Dabolim. Now who can crack that expeditiously?
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