Airlines will require fresh funding of Rs.9,600 crore this year to stabilise their operations
With high operating costs and rising interest burden making their operations unsustainable, Indian airline companies have reached a hand-to-mouth situation.
As per estimates by civil aviation ‘think-tank’ Centre for Asia Pacific Aviation (CAPA), the cash balance of some airlines has reached dangerous levels. Adding to their problem is the frequent fare wars, which result in lower yields.
Cash balance
At the end of 2013-14, CAPA had estimated that Indian carriers had Rs.3,250 crore ($585 million) of cash on hand. “With annual industry turnover in excess of Rs.60,000 crore ($10 billion), this represents the equivalent of less than three weeks revenue,” CAPA said in a report.
“One carrier’s cash on hand is understood to have at times dropped to the equivalent of less than one day’s revenue and operations are being sustained by borrowing from travel agents against future ticket sales,” CAPA said. Before Kingfisher Airline went burst, it was doing the same thing.
Working capital
CAPA said the desperate requirement of working capital by some carriers could trigger fare wars that would draw the entire industry into deep discounting.
“The danger is that at a time when pricing discipline is critical, the desperate requirement of working capital at some carriers, combined with competitive response to Air Asia’s entry, could trigger promotional pricing. Generating cash through special offers in low season is inevitable but the depth and duration of such discounting will determine whether the quantum of loss in the July to September quarter could test the holding power of some carriers,” CAPA said.
Already in precarious financial health, the Indian airline companies would require fresh funding of Rs.9,600 crore ($1.6 billion) this year to stabilise their operations, the consultancy said.
As per CAPA’s estimates, Indian carriers in the last seven years reported accumulated losses of Rs.63,300 crore ($10.6 billion), including Rs.10,200 crore ($1.7 billion) in 2013-14. For 2014-15, the domestic airline industry is projected to report a combined net loss of Rs.8,400 crore ($1.4 billion).
Debt
It said full service carriers such as Air India and Jet Airways have been drawn into a vicious circle of debt. “Airlines, including the grounded Kingfisher, have accumulated loans of Rs.95,000 crore ($15.83 billion), including vendor liabilities. Last year, interest expenses of full service carriers alone were equivalent to 13.2 per cent of their top line revenue,” CAPA said adding that all airlines other than IndiGo were financially crippled.
Urging the government to reduce taxes on jet fuel, CAPA said the government should take civil aviation seriously so that this sector could survive.
