Indian airline losses in excess of USD500 million in 2Q14 despite robust traffic growth: CAPA

CAPA - Centre for Aviation, in its India Aviation Monitor, stated (22-Oct-2013) losses for the domestic airline sector are expected to exceed USD500 million in the second quarter ending 30-Sep-2013. The report noted, "India's airlines continue to face the dual challenge of a hostile cost environment and soft yields. And the market environment is one in which airlines have a tendency to initiate loss leader pricing during low seasons to generate cash. The nation's carriers unfortunately repeatedly demonstrated their ability to undo months of hard work with just a few weeks of irrational pricing, as a result of which profitability remains elusive". It added, "Investor interest in incumbent carriers is weak, especially as any funding would largely fund losses rather than growth. Expansion plans are therefore increasingly reliant on raising debt. The fact that several carriers are turning to travel agents to provide short term financing at what is effectively a very high interest rate is a worrying sign and indicative of the extent of their difficulties" while noting: "A further one or two quarters similar to the one just completed could test the holding power of some airlines". The report noted that every airline in India is estimated to be in the red during the quarter (excluding one-time adjustment). It explained, "Among private carriers Jet Airways is estimated to have posted the highest loss at close to USD150 million, followed by SpiceJet at USD70-80 million. In both cases the estimates exclude one-time adjustments. Other carriers such as IndiGo and GoAir also incurred heavy losses. Both Jet and SpiceJet may be headed for large full year losses for FY14 before accounting for one-off adjustments such as sale-and-leaseback and other non-operating income and benefits. Jet Airways for example will receive USD150 million from the sale of equity in its loyalty program; additional funds from the sale to Etihad of three pairs of Heathrow Airport slots; sale-and-leaseback income on 737 deliveries; and a reduction in interest costs as a result of using funds from the sale of equity to Etihad to pay down debt. The contribution of these items may allow Jet to report a modest net profit".