Indian airlines rationalize routes to trim losses

[Pieter C. 5]

Indian Carriers Rationalize Routes To Trim Losses

 

August 17, 2007

India's airlines are trimming the frequency of services on busy routes and withdrawing from unprofitable ones in a bid to reclaim pricing power and turn profitable, industry players and analysts said.

 

Airlines are also renting freed aircraft to foreign carriers or returning planes to leasing firms to stem losses.

 

"It makes little sense to cannibalize customers by undercutting. Low prices spur great competition but at times it gets unhealthy and that is when we need to pause and retrospect," the head of a private airline said on condition of anonymity.

 

Deccan Aviation, which runs budget carrier Air Deccan, kicked off the exercise about a year ago by pulling out of Nashik and Agra after the two routes continued to make losses, a spokeswoman said.

 

Deccan, which has the 'common man' as its mascot and targets first-time fliers, provided connectivity to several towns for the first time, only to be hit by record losses. It has the largest network, among Indian carriers, of 65 cities and towns.

 

The no-frills airline had posted a net loss of INR2.13 billion rupees in the quarter to March, the last reported, and analysts do not expect it to turn profitable before 2008/09.

 

Rival budget carriers SpiceJet and GoAir have also scaled back. While Go flies to 11 cities from 14, SpiceJet has cut frequency on the Mumbai and Goa routes.

 

Go flew seven planes in March but has since sent three back to leasing firms. "GoAir has a unique flexible feet management plan. The objective is to ensure path to profitability," a senior GoAir official said.

 

SpiceJet has leased its aircraft to a European carrier to offset low demand and earn lease income at the same time.

 

"What we do is, we normally lease out small amount of capacity in the monsoons to European carriers where the business is very good. They come back for our peak season," SpiceJet chief executive Siddhanta Sharma said.

 

State-run Indian has withdrawn its Mumbai-Pune and Kolkata-Dhaka service citing losses, civil aviation minister Praful Patel said in a written reply to Parliament on Thursday.

 

"Mounting losses is driving domestic carriers to rationalize services and fares," CLSA said in a research note."We believe that the losses in the industry are hurting to an extent where companies are likely to behave more rationally."

 

Consolidation in the industry is also changing schedules. JetLite, formerly Air Sahara, is reworking its route network after Jet Airways acquired it in April.

 

Airlines buoyed by the sector's more-than-25 percent annual growth have increased frequency and added new cities in the last three years, often stretching India's ageing airports.

 

Centre for Asia Pacific Aviation (CAPA) estimates India's domestic air passengers will rise from 25 million in 2005/06 to about 60 million by 2010. However, 10 airlines, which added 150 aircraft in the last two years, have on order another 500.

 

Supply has outstripped demand so much that carriers such as GoAir give away tickets for free while Deccan and SpiceJet sell some for as low as a few rupees to lure travelers.

 

Loss-ridden carriers have sold aircraft and diluted equity to stay afloat. While SpiceJet is looking to raise funds for the third time, Deccan sold stake to rival Kingfisher Airlines. Jet Airways also plans to raise USD$400 million through a rights issue.

 

(Reuters)

 

Spicejet has leased-out 2 73H's to Transavia.com as evidenced by pictures posted by me in the Obs Hill (Netherlands) section