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Airlines revival may be hit by Budget

New Delhi. India’s new budget has put a dampener on the revival of the Indian aviation industry.

With recessionary blues slowly abating, domestic airlines have been making big plans for fleet and route expansion along with increased hiring of both pilots and cabin crew. These plans may now face uncertainty as the 2010-11 budget proposals envisage an increase in aviation turbine fuel prices along with the imposing service tax on all passengers. In other words, air fares are set to be hiked within the next few days. This will, in turn, have an impact on the volume of air passengers and ultimately will affect the bottomline of airlines.

Till last week, the airline industry appeared to be looking up after the crisis period gone through in the latter half of 2008 when large scale retrenchments had created a hue and cry in the country. The scale of revival is indicated by official traffic data released recently showing that domestic passenger traffic increased by as much as 23 per cent in January this year compared to the same period last year. Jet Airways and its subsidiary Jet Lite had the highest number of passengers at 1.28 million but among the budget airlines, IndiGo was the leader with 6,25,000 passengers. The Jet Airways – Jet Lite group now has 25.4 per cent of the market followed by Kingfisher at 22.2 per and Air India at 18 per cent.

The no frills airlines continue to do well and their combined market share is a substantial 34.7 per cent. In fact, these airlines have been looking to go on a hiring spree to their expanding fleet’s requirements. IndiGo, for instance, is reported to be considering hiring as many as 1000 personnel including 100 pilots, 400 cabin crew and other passenger service staff. Its fleet of 24 aircraft is set to rise to 34 by the end of the year.

Similarly, Spicejet’s fleet will also go up from 19 to 25 and needs staff for its new inductions.

The concerns about profitability of larger carriers like Air India and Kingfisher, however, remain as their bottomlines are under threat.

Air India is having to bear the burden of enormous losses that would have pushed any private airline to close down but governmental support is propping up this behemoth. This artificial respiration, however, cannot continue for all time. The airline has always suffered from an excess of bloated staff, and is now also burdened with new aircraft acquisitions that in any case are required.

As for Kingfisher, it is clear that owner Vijay Mallya has overstretched himself by going ahead with huge investments for fleet expansion along with launching international routes that are not fetching much revenue for the time being.

Anyway, the fate of the industry needs to be reviewed a few months down the line when the impact of the budget is likely to take effect. Till then one can only hope that the revival of the airline industry’s fortunes continue to keep the domestic airlines flying high.

© India Strategic