Few airlines expect profitability to improve -- European budget carrier Ryanair rattled its investors by declaring its first loss since 1997 and Michael O'Leary, its chief executive, says the loss figure could rise to Euro 60 million by year-end. Going by IATA's survey, job losses are on the cards, with 31 per cent of the carriers looking to cut staff over the next few months.
In India, the situation is no different. Low-cost airlines like SpiceJet and Go Air (many in the industry joke that it will be the first to go!) are facing a severe financial crunch. EBITDA margins have fallen for Jet Airways in its first quarter this year while Jetlite has managed to deepen its losses.
Most industry experts are no longer able to fathom Kingfisher's (and it's low-cost wing Air Deccan's) strategy where losses seem to be the name of the game. By going international, the airline promises to multiply its gigantic loss numbers dramatically.
Barring a few carriers (who are still making money and expanding), airlines globally are reacting to the increased price by trying different survival strategies. Some airlines are working on ways to lower their take-off weight (removing seats, doing away with trolley service and so on), others are reducing frills, some are downsizing and some are cutting routes and capacity.
I quote from a recent KPMG study that compiled some of the steps airlines have taken. JetBlue and US Airways have moved towards a paperless cockpit. JetBlue removed six seats from its A320s and managed to save on fuel. AirTran changed its seats to carbon fibre, which will help it save $2,000 per year per aircraft in fuel savings. Alaska Airlines has got new, lighter beverage carts.
To the horror of many passengers, many airlines have also started imposing all kinds of charges never heard of before. First boarding charges (it allows you a choice of seat) have already been accepted as the norm. American airline NorthWest charges $15 for exit row seats (Indigo charges Rs 100). JetBlue -- which made flying fun by introducing entertainment in its single class cabin -- offers you a choice of films on board at an additional charge. Many carriers are now charging for each piece of luggage carried.
In the US, where carriers spend an extra $275 million on fuel a year to lift heavier passengers, the day may not be far when airlines charge according to your body weight.
In contrast to their global counterparts, Indian airlines are spending most of their time appealing to the government to bail them out. In fact, they cried so hoarse that a few weeks ago, the government was compelled to set up a task force headed by none other than the Cabinet Secretary to suggest measures to ensure sustained growth in the industry.
But what can the government really do? Very little, say senior civil aviation ministry officials. Fuel costs are undoubtedly higher in India than in other countries due to the varying levels of sales tax levied by states on it. If fuel is made into what is known as a declared good, airlines would save 20 per cent.
Fuel accounts for 40 per cent of operating costs of carriers, so the saving would be 20 per cent of that 40 per cent. But there is a big 'if' here. The state governments clearly don't want to let go of Rs 3,500-4,000 crore (Rs 30-40 billion) of revenue earned from the sales tax. Most of this is divided primarily among Maharashtra, Tamil Nadu, Andhra Pradesh, Gujarat and Karnataka. These states are quite unwilling to let go of the taxes.
Airlines are also asking for reductions in airport charges. Here too, there's very little the government can do, as the recent user-charges controversy showed. Bangalore airport, for instance, flatly refused to toe the official line, despite exhortations from the minister himself (it grudgingly relented for a brief period in the end). As facilities improve at Delhi and Mumbai airports, charges paid by airlines are only likely to head upward. In fact, with no regulator in place, airport charges will be based solely on what the operator deems fit.
I'm not saying airlines here are totally blind to what cost-cutting can do. It's just that the constant bleating by carriers and their federation is beginning to get a bit boring. If more of that time were spent on looking at ways to cut costs and make processes and systems more efficient, it may be the better way to go.
When faced with low loads, many of the airlines tend to find one reason or the other to simply cancel the flight. But one sees or hears of very few innovative ideas on how to improve performance and lower costs. Jet Airways -- which just declared its quarterly results -- certainly showed a sharp hike in fuel costs but its non-fuel costs also rose by a whopping 46 per cent. A reduction in the sales tax on ATF will help airlines' balance sheets but it won't help them survive. It's perhaps time to stop complaining and to tighten more than just a seatbelt.
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