Despite high oil prices,airlines can be profitable

Raajeev B Batra, executive director KPMG in India said, "The airline business today is one of the most complex industries. Its profitability, revenue and yield are predominately driven by economic and external factors and this makes it most vulnerable to even the slightest variation in economic growth rates, national disasters, epidemic outbreaks, terrorism, war, currency fluctuations and most importantly oil prices".
 
Responding to reports of a likely slowdown in the aviation sector in India, KPMG states that the growth in air travel globally and in India will be adversely influenced by epidemic outbreaks, economic recession, terrorism, shifts in policy and regulations and competitive markets but not by oil prices.
 
Although ATF price hikes is having its toll on the airlines profitability, the KPMG analysis believes that it is currently not possible for any airline in India to make profits within three years of starting operations as average airline break even based on prevalent capital expenditure typically occurs in a minimum of five to seven years of operations.
 
While ATF presently accounts for 30 to 35 per cent of airline operating costs, it is also relevant to note that an airline would only spend on ATF when it operates a scheduled flight and coincidently enough, that is also when it generates revenue.  Hence, airline's expenditure on fuel is directly proportionate to occupancy and load.
 
During the period April