NEW DELHI, May 7 — Emergency landings, chronic delays and millions of dollars in losses — and that is just the month of April.
India’s airline industry has grown at breakneck speed, with a dozen local airlines carrying 33 million passengers on easy financing from banks and aggressive sales campaigns by Boeing and Airbus.
Now, when they are supposed to be turning profits, they are losing money and buying more planes — including a handful of doubledecker Airbus 380s.
Kingfisher Airlines of India, has ordered five of the planes, and has options for five more, despite the fact that it has not yet made a profit. India’s outdated airports are staggering under the crush of passengers and flights, let alone giant planes, and the arrival recently in Delhi of an Airbus 380 required that the grassy edges of the runway be mowed and picked clean of rocks.
Airline optimists dismiss the industry’s troubles, saying growth will take care of the problems. They argue that India’s economic expansion and its increasing links with international business have created plenty of room for a number of carriers.
To be sure, India has the fastest-growing passenger load in the world — the number of passengers taking domestic flights rose nearly 50 percent last year and is projected to increase more than fivefold by 2020, to 200 million a year.
“You have to look at the opportunity that is out there,” said David Velupillai, an Airbus spokesman who landed in Delhi on the A380. “The thing that drives air travel is economic growth,” he said, and India and China are the world’s fastest-growing economies. “We’ve consistently underestimated what the total Indian market will be,” he added.
Many airports are slowly being upgraded. GMR, an infrastructure and power operator, is building a more modern airport outside Hyderabad, a central India city where traditional pearl trading businesses are complemented by software companies. The final project, which will support 40 million passengers a year, along with hotels and shopping malls, will be a hub between Europe and the rest of Asia, GMR says.
Just 3 per 100 travel by air each year in India, compared with about 10 per 100 in China, said T. Srinagesh, the chief operating officer of the Hyderabad airport project. Given the size of India, increasing that low figure to just six would mean “plenty of traffic for us,” he said.
But, the industry will probably need a transformation if it is going to reach the predictions.
Competition among the dozen carriers, up fourfold from the turn of the century, is so cutthroat that carriers lose $10 to $15 a passenger on each flight, according to the Center for Asia Pacific Aviation. Maintenance crews and airports are stretched to their limits as new passengers take advantage of supercheap flights. Altogether, the industry is losing half a billion dollars a year.
So far, emergencies have been minor, like a collapsed wheel that tipped an Air India plane on a runway in April, and no one is suggesting that Indian airlines are unsafe to fly. But the industry is unsustainable as it is, its critics say.
“The entire industry is operating with fares below their costs,” said Kapil Kaul, the chief executive for India at the center. “Mergers, acquisitions and liquidations are necessary.”
A shakeout may already be under way, but it is not happening quickly. After months of negotiations, Air Sahara agreed to a takeover by Jet Airways in April. India’s two government airlines, Air India and Indian Air, are expected to sign a long-awaited merger this year, though completing the deal is expected to take two years.
Air Deccan, a low-cost start-up, has been searching for an investor that might include some partnership with Kingfisher, bankers and analysts say, though Air Deccan denies there are any plans to link up.
In some cases, the growth of the airlines has been stoked by readily available foreign cash. BNP Paribas, Goldman Sachs and the Dubai government’s private equity arm have invested in Spice Jet, and HSBC in Jet Airways.
“These investors are betting on their own horses and waiting for the others to die,” said Gautam Roy, an analyst with Edelweiss Capital in Mumbai. “All these companies have strong investment backing, and that’s not going away.”
Until these financiers pull out to cut losses, industry growth — and its problems — are likely to continue, many analysts say. Mr. Roy estimates that 15 percent of the industry’s capacity needs to disappear before the industry makes money. “It’s clearly a situation where more money coming in is bad for everyone,” except for the carrier that is getting it in the short term, Mr. Roy said. Aircraft manufacturers have also played a role in creating excess capacity, some say.
“Airbus and Boeing have been very aggressive,” with 400 to 450 total aircraft on order from India, Mr. Kaul said. “Most of these companies have slim resources and some of them don’t have the cash to run their daily operations,” he added.
Of the $188 billion in Boeing’s backlog of orders, Indian carriers make up $20 billion. Air India has ordered 68 planes; Jet Airways is awaiting 9 and its new subsidiary, Air Sahara, has ordered 10. Spice Jet has taken 10.
Most of these back orders already have guaranteed financing in place, thanks to the United States Export-Import Bank, which guarantees loans to help increase United States trade.
“We feel very, very comfortable — we don’t lose sleep at all,” said the Boeing commercial airline vice president for sales, Dinesh A. Keskar.
Add comment