(C)rude shock for aviation

The hike in crude oil prices by 10 per cent could add close to Rs 790 crore of additional losses on an annual basis for the domestic aviation industry, which in 2006 suffered losses of around Rs 1,975 crore.

Speaking to Business Standard, Jet Airways CEO Wolfgang Prock-Schaeur said if he was to pinpoint his single biggest worry today, it would be the rise in crude oil prices.

"Yes, you are right, we have been struggling with this issue for long. But, now if the industry does not get some relief on this front, we can't continue for long. We have to make our point crystal clear to the government, which has been telling us that various proposals are under consideration for a while now," he said, speaking for the industry in general.

He argued that the industry's survival could depend on this one single factor.

While the situation of the industry has been grim for a while, industry sources confirm that some of the lowest buckets of fares after the consolidation in the sector have now disappeared and that eventually "" but not before the middle of 2008 "" things may turn into a corner. But this situation could change if the crude oil prices hit new highs, say sources.

What is irking the domestic industry even more is that though the crude prices have risen for airlines globally, local taxes and levies make it particularly difficult for them.

In fact, the international aviation industry is expected to rake in higher than expected profits in 2007, with IATA recently revising its forecast for 2007 upward from an industry profit of Rs 20,160 crore ($5.1 billion) to Rs 22,136 crore ($5.6 billion).

According to data compiled by the US department of transportation, a group of 21 selected passenger airlines in the US reported a system operating profit margin of 8.8 per cent in the second quarter of 2007, the highest profit margin since 2000 and the first time since 2000 that airlines have had five consecutive profitable quarters.

The 21-carrier group consists of the seven largest network, low-cost and regional carriers based on operating revenue.

Fuel currently accounts for close to 40 per cent of the total operating costs for airlines in India. Air India, which has reported a loss of Rs 448 crore for 2006-07, says that a large portion of this is due to increased fuel prices with its fuel bill for 2006-07 (Rs 3,520 crore) being Rs 386 crore higher than that of 2005-06 (Rs 3,134 crore).

The estimated annual fuel bill for the industry is around Rs 6,720.1 crore ($1.7 billion), based on September 2006 rates, according to the calculations made by the Federation of Indian Airlines, an association of the domestic aviation industry.

It is estimated by the FIA that rationalisation of ATF prices for domestic operations, to international benchmarks, will result in an estimated annual savings of at least Rs 2,466.67 crore ($624 million) for the airline industry.