Rising costs threaten Indian air growth

The future development of the Indian aviation industry could be jeopardised by increasing costs


The future development of the Indian aviation industry could be jeopardised by increasing costs, particularly in human resources, warned The Centre for Asia Pacific Aviation.

Recent increases in the salaries of aviation professionals, together with the rising cost of fuel, will provoke significant structural changes in the industry over the next year, predicted Kapil Kaul, the company’s CEO for the Middle East and Indian subcontinent.

“India has flirted with the concept of consolidation, unsuccessfully to date, but that does not mean the issue will disappear,” said Kaul. “On the contrary, some new partnerships between airlines must emerge in the months ahead. It is quite possible that a full service carrier may acquire an LCC within the next 12 months.”

The Centre for Asia Pacific Aviation believes the losses currently being accumulated cannot be sustained and will drive potential entrants into other regions. However, despite the challenging environment, approximately 12 start-ups are awaiting permission to launch. “India cannot afford to repeat the 1990s, when new entrants came and went and the sector reentered its slumber,” continued Kaul. “But, on this occasion, the market is vibrant and fast expanding. Like any relatively free market, there will be casualties. This does not mean the system is wrong, it just needs time to find a dynamic equilibrium.”

Market leader, Jet Airways, recently reported a net loss of US $9.8 million in the three months ended June 2006, compared to a $21.9 million profit in the previous corresponding period, despite a 24.8% increase in revenue.

“The key problem for Jet Airways in the domestic market is personnel costs, which more than doubled to account for 13.2% of total costs in the June 2006 quarter, compared to the previous corresponding period,” said Kaul.

According to Jet, higher-salaried staff, such as pilots, cabin crew and engineers, received annual wage increases of 12-15%, while pilots racked up $5 million more overtime payments than in the same period last year.

“All carriers are under pressure to retain staff, so salaries for skilled staff are rising quickly,” he added. “Overall, the short-term term outlook for airline profitability remains very challenging. This is of particular concern to the established carriers, while the new entrants engage in deep discounting to capture a position in the market.”

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