India’s aviation blues see more red..

Vijay Mallya’s refusal to call his Air Deccan purchase a low cost airline addition to its portfolio, is not

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without reason. With sales taxes of 30% and more (depending on state jurisdiction over and above federal taxes) ATf costs are nearly 50% of the airline’s revenues, more for Kingfisher. ATF prices were further increased even as petrol prices were cut nationally and the OMCs reported a huge bleed in Q2 results from subsidising even Diesel and Kerosene and Gas majors flunked the test of bearing the LPG and CNG burden and refused to put up more for the required expansion of India’s energy infrastructure. ATF prices were last cut in September and October at Delhi (livemint.com)

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Just a year and a half ago , Jet fuel prices were 33% lower at nearly 42k per KL including taxes. Internationally too the quarter has been tough for global airlines, ATF prices averaging $3.3 a gallon for American over $2.2 last year but still  these costs were only 35% of its operations and they are at an equal risk from unionisation and staff costs from the same

With fleet rationalisation one can hope for a little economic respite for the otherwise 350 flight srong Kingfisher day schedule, but it needs more Jet Konnect features and efficiencies other than interest rate cuts to show up with a winning plan for that INR 6 bln working capital enhancement/ conversion of overnight lines to LC backed lines presumably for Aircraft lease costs  and the inevitable reduction of debt and interest loads that will let it fly high and join the thin ranks of airlines turning in a profit. United Airlines has testified twice

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in the last decade that it can be done, even if Vijay Mallya finds the thoguht of comparing with profitable cousin Naresh Goyal who may have more investors signing up when Aviation policy is released this week allowing 26% to 49% FDI interest in the Airlines incl. from Foreign Airlines.

Do you also realise that steep fare increases make it very difficult for the Airlines to recover their costs as the Rupee falls without end and Oil does not really correct to a material low!!

However, after Kingfisher, there are others and the Airlines sooner than later have to pay up for new aircraft and order 100s more as the current fleets are hardly likely to contain and run with India’s air traffic requirements as passengars continue to grow at double digits every year, enough to warrant continuation of the airport’s expansion plans int o Phase II in Bangalore Mumbai, and even Hyderabad and Delhi to handle 20-30 mln passengars a year as was originally envisaged.