Clear air turbulence

It is not a question of ‘if’ but ‘when’”, is the dire prediction of an aviation industry insider. The question? Will rising costs claim one of India’s new airlines, much like they did back in 1996 when East-West, Damania and ModiLuft folded up in the space of a few months? “I will not deny that the situation is bad,” admits Siddhanta Sharma, Executive Chairman, SpiceJet. “Three years ago, when we started operations, aviation turbine fuel (ATF) cost less than diesel, but prices have doubled since then.”

In May 2007, the cost of a kilolitre of ATF was Rs 37,421 at Delhi (the cheapest of India’s major airports), in May 2008 the cost was Rs 58,388, a 56 per cent increase. Accordingly, airlines that started out on the premise that fuel would account for 35-40 per cent of operating costs suddenly face a situation where it makes up 80 per cent of costs. “Costs vary from airline to airline, but from my talks with other airlines, this increase is hurting everybody,” says Sharma.

But will an airline shut down? GoAir recently stopped flying to Kochi, Coimbatore, Pune and Chennai; others are slowing down expansion plans. Increasing air fares is not the best option for the airlines, which, just the same, have increased prices by raising the “fuel surcharge” over the past few months. “We see a fall in demand every time we increase prices. And industry growth rates have dropped to single digits,” says Sharma. So, don’t be surprised if a low-fare carrier simply drops off the horizon.
—Kushan Mitra