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Airline companies bullish on growth: FIA poll

Economic Times; 26 October 2007

NEW DELHI:  Despite the huge blobs of red ink splattered across their balance sheets, Indian airline companies are bullish on growth, infrastructure upgradation and potential for profitability. A snap poll by the Federation of Indian Airlines (FIA) - the first by the industry association - highlights optimism among airline chief executives, probably encouraged by the recent consolidation, and strong belief in the Indian growth story.

Airline CEOs feel that growth would continue to be strong - as high as 20% per annum even in the long term - for both passenger and cargo traffic. They also feel that airport infrastructure would improve in the medium term - as quickly as three years despite growing traffic.

According to the survey, about 61% CEOs felt that the passenger traffic would increase between 20% to 30% in the next 12 months. Almost half of the CEOs whose opinion was sought said that in the coming six months cargo traffic would grow in the range of 10% to 20%. Some of the top airline officials are, however, concerned over over-capacity which they see as a major threat to the health of the industry.

The government can help in improving the situation by scrapping obsolete regulations and bring modern norms in line with today’s realities, the CEOs feel. They also want aviation infrastructure to remain more competitive and feel the government should allow multiple airports in major cities. In Bangalore and Hyderabad, for example, they want the existing airports to be open for civilian traffic even after the upcoming new airports are launched.

Infrastructural bottlenecks and higher tax on aviation turbine fuel (ATF) are the biggest stumbling block in the way of airlines. More than 91% CEOs consider these factors as the critical challenge for the industry. Fuel cost contributes more than 30% to the operational cost of the airline. At Rs 39,768 per kilolitre, ATF price in India is about 75% higher than the international price.

Passenger traffic in the domestic market increased 36.47% during the first nine months of 2007 to 317 lakh as compared to 232 lakh during the corresponding period of the previous year. Optimism in the airline industry stems mainly from consolidation in the domestic skies.

While Jet Airways took over Air Sahara in April this year, Kingfisher picked up controlling stake in Air Deccan recently. On its part, the government merged Air India and Indian to make country’s biggest airline with a fleet of more than 125 aircraft.