According to a recent report released by the India Ratings and Research Ltd the airlines that are operating in India are flat to becoming distraught property because of their bungling cost structure.
According to a recent report released by the India Ratings and Research Ltd the airlines that are operating in India are flat to becoming distraught property because of their bungling cost structure.
Keeping in view the expenditure structure, competitive power in the business and subdued growth expectations in the medium term of the airlines, the ratings firm said a majority of domestic airlines are implausible to enjoy investment grade ratings on individual basis.
To tackle with this problem, the airlines will need a strong, supportive promoter to improve their feasibility along with the demanding operating atmosphere, said the report.
“Globally, the airline sector is most susceptible to recurring demand due to capital intensity and price wars,” the report said. It added that the inadequacies are driven by taxes and regulatory issues, high financial leverage and persistent cash generation issues.
India Ratings assessed that tax on aviation turbine fuel or jet fuel grind down the functional limits of Indian airline companies by 12-18 percentage points. Higher estimated safeguarding cost and various taxes additionally decline the margins.
The report said that infrastructure-related restraints make aircraft handling and scheduling unproductive. It estimated the utilization level of aircraft of Indian airlines to be 10-15% lower than those belonging to profitable global companies. Domestic passenger load factor (PLF) depreciated to 74% in 2012 from 77% in 2010, which point to overfilling in the airline industry, which may continue in the medium term. According to the domestic passenger data for the first five months of 2013, passenger volumes may fall 3-5% year-on-year in 2013 (2012: down 3.5% y-o-y).
As reported in online media, in the first quarter of the current fiscal, the Indian airline industry lost nearly $200 million, although low-fare carriers showed profit in the range of $40-$50 million. Airlines, excluding Kingfisher Airlines, lost an estimated $1.95 billion in the last fiscal on combined revenue of $9.5 billion.
