The Fear of Flight: No Profit In Sight

Profits have never been the defining characteristic of the airline business. Even by its own standards, however, the industry has run into massive losses.

Profits have never been the defining characteristic of the airline business. Even by its own standards, however, the industry has run into massive losses. Giovanni Bisignani, the boss of the International Air Transport Association (Iata), disclosed at the group’s annual meeting last week that the global economic crisis has impacted the industry much more severely than was previously estimated. The estimated loss of $9 billion for the international airline industry is almost double the $4.7 billion loss forecast in March 2009. The group represents about 230 airlines that make up 93 per cent of all scheduled international air traffic. Iata also revised its loss estimate for 2008 to $10.4 billion from its previous figure of $8.5 billion. The passenger sector worldwide was the hardest hit with a negative rate of 10 per cent in 2008 ,thus creating a gaping hole in the pockets of global airlines. The scenario is no better in India, where the loss is estimated to be $2 billion. The frenzy of cheap fares that had zipped up the market over the last two year led to the losses, along with the spiralling price of aviation turbine fuel (ATF). “What is even harder for the airlines is that lack of demand may force them to offer yet cheaper tickets. This will create a vicious cycle and make the whole business model unsustainable going forward,” says a senior aviation analyst. A recent perspective paper by Centre for Asia-Pacific Aviation, a think-tank, pointed out that the airline industry reached a tipping point in June 2009 with an 18.5 per cent increase in ATF prices. The paper urged governments to prepare a bail out package specifically to rescue the airline industry. The report quoted Paramount Airways Managing Director M Thiagarajan as saying, “There are things that we are doing to reduce fuel consump­tion, but nothing can really offset the whopping 18.5 per cent hike in ATF prices that has hit the industry this week.” It looks to be a cruel summer for air carriers in India, and globally it could yet mean a very hard landing.

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