Airlines In India Are Bleeding

The rise in fuel prices and the slow onset of recession has sent the Airline Industry into shock not only in India but worldwide. A few weeks ago a high ranking executive of Emirates, the Dubai based airline said that his own airline faces the possibility of a drop in profits. This is an important statement because Emirates are the only airline Worldwide to have been the least affected by rising fuel prices . In addition they have managed to make money while many other airlines have gone totally bust.

In India too the airline industry has been hammered. Not to the extent where they have been forced to shut shop but one where profits are simply not happening. Airlines are losing money mainly because many of them made a collective decision to hike fares. The problem of course started when the domestic traveler who has himself been hit by inflation and high lending rates decided that he’d indeed sacrifice time and luxury by using alternative methods of transport.

The side effect has been extremely beneficial for the Indian Railways. Boosted further by cheaper fares and even more routes added in the railway budget a few months ago the Indian Railways are laughing all the way to the bank.

Domestic airlines have been startled by the number of people who have been switching to rail. The price hike was a calculated risk that has backfired because none of them considered the fact that a significant majority of their passengers who are mainly businessmen and women would dump them for train travel. They were expecting the casual traveler to do so but not the middle class businessman who regularly adds a significant amount to their revenues.

The road ahead will continue to be difficult for the airlines. For starters fuel prices despite having fallen are still no where near the level airways would want them to be. A trend that has resulted from this is the amount of collaborations being formed between different airlines. Many of them have cut flights, thereby merging certain routes, sharing flights, personnel and splitting the revenue.

This will continue to be a trend especially after heavyweight’s American Airlines and British Airways announced their partnership in order to stop losing money.

None of the above is good news for passengers. India’s Civil Aviation Authority will in all probability direct domestic and international airports throughout India to charge a ‘User Development Fee’. While this fee is being passed off as an amount required to pay back that which is owed to companies that have undertaken the task of redoing and rebuilding airports; the fact remains that much of this fee will be diverted to airlines as some sort of compensation for the amount of passengers they have lost.

However if you’re interested in investing in the airline sector, there is no better time than now. Shares of Jet Airways and Air Deccan are trading at low levels and the recently talked about Spicejet. It is a certainty as history has shown that many airlines that survive this period post high market values once the difficulties are over. The time is right to make your move.