Bigger airlines lose passengers as rising fuel costs push up fares
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Bigger airliners are losing passengers to smaller players after soaring aviation fuel costs forced carriers across board to hike fares over the past year.
Airfares, which have gone up by over 18 per cent in 2008, are likely to rise further after fuel prices were hiked by about 19 per cent on Saturday. According to industry sources, fuel prices have risen between 30 to 43 per cent in the past year, and now costs Rs.71,759.06 ($1,685) in Mumbai and Rs.69,227.08 ($1,625) in New Delhi.
And that is hitting the more expensive carriers.
Figures released by the Directorate General of Civil Aviation (DGCA) for 2007 show the consolidated share of the low-cost carriers (LCCs) such as IndiGo, SpiceJet and GoAir has gone up to 22 per cent from 12 per cent in 2006.
"The figures will go higher this year," a SpiceJet official predicted, adding, "We have over 82 per cent flight occupancy."
A report by a Citigroup analyst says the number of corporate travellers has already risen to 38 per cent now and is expected to touch 45 per cent.
"Many business travellers are now migrating from full service airlines to budget airlines," said the report.
But with fuel accounts for the bulk of a carrier's operating expenses, profitability is being whittled away, and the Delhi-based SpiceJet says it would be impossible for it to break even before 2009-10.
"Fuel accounts for more than 50 per cent of our total costs currently," SpiceJet chief finance officer Partha Sarathi Basu told IANS.
Along with airlines companies, their shareholders too are being hit, as aviation stocks in general have plummeted in the past six months.
Jet Airways shares tumbled to Rs.537.70 on May 30, 2008; the scrip was trading at Rs 1020 in early January 2008.
Deccan Aviation - the budget carrier now integrated with Vijay Mallya's Kingfisher, closed at Rs 115.85 on Friday, compared to Rs 142 in April 2008. SpiceJet shares closed at Rs 32.50, against Rs 104.50 some five months ago.
"Airline stocks are susceptible to movements in the energy market because fuel is a major component of an airline's running costs," investment advisor S P Tulsian said.
It's a situation not unique to the Indian bourses these days, an analyst with broking firm Prabhudas Liladhar said.
The largest US carrier, American Airlines, has seen its stocks falling after rising fuel prices forced it to cut capacity by 11-13 per cent, and scrap several services, the analyst said.
Earlier this week, Australia-based Qantas Airways cut the overall capacity by around five per cent and froze executive pay. In the US, no-frills airline JetBlue has delayed taking deliveries of some 21 aircraft to preserve liquidity.
Experts say that major carriers will move away from ultra-cheap fares and focus on smarter routes and fare-planning for better yields.
For instance, a survey conducted by the American Express Business Travel Monitor, Asia Pacific, says discount economy fares have already decreased 11 per cent in recent months.
Airfares, which have gone up by over 18 per cent in 2008, are likely to rise further after fuel prices were hiked by about 19 per cent on Saturday. According to industry sources, fuel prices have risen between 30 to 43 per cent in the past year, and now costs Rs.71,759.06 ($1,685) in Mumbai and Rs.69,227.08 ($1,625) in New Delhi.
And that is hitting the more expensive carriers.
Figures released by the Directorate General of Civil Aviation (DGCA) for 2007 show the consolidated share of the low-cost carriers (LCCs) such as IndiGo, SpiceJet and GoAir has gone up to 22 per cent from 12 per cent in 2006.
"The figures will go higher this year," a SpiceJet official predicted, adding, "We have over 82 per cent flight occupancy."
A report by a Citigroup analyst says the number of corporate travellers has already risen to 38 per cent now and is expected to touch 45 per cent.
"Many business travellers are now migrating from full service airlines to budget airlines," said the report.
But with fuel accounts for the bulk of a carrier's operating expenses, profitability is being whittled away, and the Delhi-based SpiceJet says it would be impossible for it to break even before 2009-10.
"Fuel accounts for more than 50 per cent of our total costs currently," SpiceJet chief finance officer Partha Sarathi Basu told IANS.
Along with airlines companies, their shareholders too are being hit, as aviation stocks in general have plummeted in the past six months.
Jet Airways shares tumbled to Rs.537.70 on May 30, 2008; the scrip was trading at Rs 1020 in early January 2008.
Deccan Aviation - the budget carrier now integrated with Vijay Mallya's Kingfisher, closed at Rs 115.85 on Friday, compared to Rs 142 in April 2008. SpiceJet shares closed at Rs 32.50, against Rs 104.50 some five months ago.
"Airline stocks are susceptible to movements in the energy market because fuel is a major component of an airline's running costs," investment advisor S P Tulsian said.
It's a situation not unique to the Indian bourses these days, an analyst with broking firm Prabhudas Liladhar said.
The largest US carrier, American Airlines, has seen its stocks falling after rising fuel prices forced it to cut capacity by 11-13 per cent, and scrap several services, the analyst said.
Earlier this week, Australia-based Qantas Airways cut the overall capacity by around five per cent and froze executive pay. In the US, no-frills airline JetBlue has delayed taking deliveries of some 21 aircraft to preserve liquidity.
Experts say that major carriers will move away from ultra-cheap fares and focus on smarter routes and fare-planning for better yields.
For instance, a survey conducted by the American Express Business Travel Monitor, Asia Pacific, says discount economy fares have already decreased 11 per cent in recent months.
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