It looks like Indian airlines are not the only ones sweating under the pressure of high operating costs and increasing threats from the competition: even international carriers are feeling the heat and starting to cut capacity to India. That could mean bad news for passengers because ticket prices, at least on some international routes, could rise in the face of reduced competition.
On Monday, Austria’s largest airline, Austrian Airlines, which operates a global route network of around 130 destinations, said it is discontinuing flights in the Mumbai-Vienna sector from March 25 as the route has became unprofitable because of the challenging economic situation and intensifying competition from other airlines. Unless there is reform in the aviation sector, especially in the matters of jet fuel prices and undercutting of ticket prices by Air India, we’re likely to see more airlines cutting down their operations in India.
Austrian Airline’s CEO, Jaan Albrecht, said in a statement that, “From the summer of 2012 onwards, we shall be sharply increasing flight frequencies to our core markets in Eastern Europe, and building up capacity to the Middle East in a trade-off with the destination of Mumbai.” It’s not the only airline to cite problems with operating in India, which is one of the fastest-growing aviation markets in the world. Local carriers are already floundering massively operating on domestic routes. While passenger traffic has climbed in leaps and bounds in recent years, operating costs, cut-throat price wars and a skewed policy environment mean that more than 80 percent of Indian carriers are losing money. Kingfisher Airlines is a stark case in point.
Not surprisingly, even international airlines are wilting under the same set of pressures. According to a report in the Business Standard, global airline Air France announced that it is reducing its frequency to Delhi, Mumbai and Bangalore to six flights a week, ostensibly to adjust with lower demand in summer, although it’s likely that tough operating conditions would also have played a part that decision. In the past year, more than five foreign airlines have withdrawn flights from the Mumbai and Delhi routes, citing high operating costs, including high airport and fuel charges. These include AirAsia, Air AsiaX, Thai AirAsia, FinnAir and Virgin Atlantic. Just last month, American Airlines announced it would discontinue its Delhi flights, while Lufthansa also halted its flights to Kolkata.
Other leading global airlines like British Airways, Air France-KLM and Lufthansa have also said they would rethink their plans of flying in and out of Delhi if airport charges are increased by a whopping 280 percent, according to the newspaper report. Unfortunately, it looks like their problems are just about to multiply because flying out of Mumbai could also get more expensive as the airport operator, MIAL, is in the process of acquiring 16 acres of nearby land, according to another Business Standard report. This expansion cost is likely to result in higher airport development fees, which currently stands at Rs 600 for an international passenger and Rs 100 for a domestic passenger.
Of course, we already know about high jet fuel prices: fuel costs account for nearly half the operating cost of domestic carriers. High sales tax on jet fuel is a big culprit here — about 24 percent , one of the highest in the world. There has been talk of allowing foreign carriers to take up to a 49 percent stake in local carriers, which might ease some financial pressure off local carriers. But what of international ones? Unless there is reform in the aviation sector, especially in the matters of jet fuel prices and undercutting of ticket prices by Air India, we’re likely to see more airlines cutting down their operations in India.
For fliers, that can only mean higher prices from the airlines that stay back.
