India’s airlines enter 2011 comforted by double-digit growth in passenger traffic that promises to stretch into a second year as the economy grows at a faster pace, helping support their ambitious expansion plans.Jet Airways (India) Ltd, Kingfisher Airlines Ltd, IndiGo run by InterGlobe Aviation Ltd, Air India Ltd and smaller airlines have carried a record 50 million passengers in 2010, an increase of 18% over the year-ago period.And, after posting a combined loss of $2 billion (`9,020 crore today) in each of the previous two years, airlines are set for a profit of $300 million in the fiscal year to March 2011, estimates the consultancy Centre for Asia Pacific Aviation (Capa).
India’s airlines have emerged from two years of turbulence during which they were beset by surging costs, excess capacity and intense competition as well as fallout from the global financial crisis that caused passenger traffic to slump.The Indian economy’s rapid turnaround—growth in the current fiscal is pegged at 8.75% by the government, compared with 7.4% in the previous year—has come to the rescue of the airline industry.Almost all factors that drive airline profitability—passenger demand, load factors, yields and oil prices—have largely been favourable in 2010.JPMorgan India has started tracking airline stocks that are back in favour with investors who shunned them in the past three years.Jet Airways shares have risen 29% since the start of 2010 to `715 at the close of trading on Wednesday and SpiceJet Ltd rose 35% to `76.90. But Kingfisher Airlines declined marginally by 1.58% to `62.05. The Bombay Stock Exchange benchmark Sensex rose 16.67% in the same period.
“Stock prices have recovered and that has provided opportunity for full service airlines to infuse equity and bring down gearing levels,” said JPMorgan’s Singh. “Full-service airlines have lined up plans to raise equity and are also looking at restructuring debt to bring down interest costs.”Air India, Kingfisher Airlines and Jet Airways have combined debt of $13.5 billion; the Reserve Bank of India has given their creditors the go-ahead to recast the debt, throwing a lifeline to the full-service carriers.“In the earlier decade, they may not have carried so many passengers (as in 2010), but the profits were higher,” says Boeing Co.’s India president Dinesh Keskar. “What has happened is that the debt has increased and therefore that needs to be paid off as well.” As a consequence of debt it now “takes you six months to dig the hole to see the sun”, is how Keskar puts it.The debt is a legacy of airlines’ expansion in the years of air travel boom that preceded the 2008-09 slowdown.
India’s airlines have emerged from two years of turbulence during which they were beset by surging costs, excess capacity and intense competition as well as fallout from the global financial crisis that caused passenger traffic to slump.The Indian economy’s rapid turnaround—growth in the current fiscal is pegged at 8.75% by the government, compared with 7.4% in the previous year—has come to the rescue of the airline industry.Almost all factors that drive airline profitability—passenger demand, load factors, yields and oil prices—have largely been favourable in 2010.JPMorgan India has started tracking airline stocks that are back in favour with investors who shunned them in the past three years.Jet Airways shares have risen 29% since the start of 2010 to `715 at the close of trading on Wednesday and SpiceJet Ltd rose 35% to `76.90. But Kingfisher Airlines declined marginally by 1.58% to `62.05. The Bombay Stock Exchange benchmark Sensex rose 16.67% in the same period.
“Stock prices have recovered and that has provided opportunity for full service airlines to infuse equity and bring down gearing levels,” said JPMorgan’s Singh. “Full-service airlines have lined up plans to raise equity and are also looking at restructuring debt to bring down interest costs.”Air India, Kingfisher Airlines and Jet Airways have combined debt of $13.5 billion; the Reserve Bank of India has given their creditors the go-ahead to recast the debt, throwing a lifeline to the full-service carriers.“In the earlier decade, they may not have carried so many passengers (as in 2010), but the profits were higher,” says Boeing Co.’s India president Dinesh Keskar. “What has happened is that the debt has increased and therefore that needs to be paid off as well.” As a consequence of debt it now “takes you six months to dig the hole to see the sun”, is how Keskar puts it.The debt is a legacy of airlines’ expansion in the years of air travel boom that preceded the 2008-09 slowdown.
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