With costs rising, skepticism over recovery of aviation sector stays

Disha speaks to Neil Mills, CEO, SpiceJet on the issue

Though four out of six domestic airlines were in black in the first quarter of this year, it seems it is too early to point to a sustainable recovery for aviation sector.

The ATF fuel is at a record high above Rs 70,000 per kilolitre now and Delhi Airport International Limited (DIAL) also increased Delhi airport charges by 343% from mid-May.

The fuel hike severely impacts airlines' costs as it contributes around 40 to 50% of the airlines' business .

In an interview with Business standard, Neil Mills, Chief Executive Officer of Spicejet said, “The service tax that is coming in from April of this year, increase in Delhi airport costs from the middle of this May, deterioration in exchange rate from January and particularly with the increase in fuel from June this year, it just seems to be a sort of, one blow after the next. The industry is in tough times at the moment.”

We think that we can get through this. But it will be those with the best cost base and adequate funding which will come out the other end of this, he added.

The Centre for Asia Pacific Aviation (CAPA) Research and Market analysis also said, “The fact that for most carriers underlying profits remained modest at best after excluding sale-and leaseback and other non-operating income - during a peak travel quarter which saw strong yield improvements - means that structural imbalances remain.”

As a result CAPA believes that significant improvements will be required in third and fourth quarter financial performance to suggest that a sustainable recovery is underway.  

More so, the cost pressures will be further intensified towards the end of this year when increases in airport charges and passenger fees are announced for Mumbai, Chennai and Kolkata in the third quarter.

The CAPA analysis added that the cost structure is not compensated by fare levels despite the recent increases in yields and at present Indian carriers do not have a cost base to deliver sustainable profitability.

Mills also said, “To suddenly say that the recovery of the aviation sector is there because of the reasonably strong quarter, we are jumping to a conclusion.”

Though the fares are high but loads are struggling as revealed by the DGCA data also. We are getting to a point where people can’t afford. Ultimately, we are into consumer business and the consumer has to be in a position where they can pay. If they can’t pay, then you have got beyond that point, he added