Indian airlines can break even despite rising fuel costs: KPMG

Mumbai, Jul 3 (UNI) Improved efficiencies, processes and switching over to leaner business models and cost optimisation in business operations could help airlines in India break even and emerge profitable despite rising ATF costs, a study has revealed.

The study 'Indian Aviation: Flying Through Turbulence' conducted by consultancy firm KPMG, released here today, cited that air traffic in India was no longer a mere statistic but a phenomena that was based on the fact that people from every walk of life, demographic, ethnicity and culture have opted to travel because not that the world is increasingly getting closer, but quality of time and the productivity is increasingly becoming the focus.

Responding to reports of a likely slowdown in the aviation sector in India, it said the growth in air travel globally and in India would be adversely influenced by epidemic outbreaks, economic recession, terrorism, shifts in policy and regulations and competitive markets but not by oil prices.

Although ATF price hikes is having its toll on the airlines profitability, the KPMG analysis believes that it was currently not possible for any airline in India to make profits within three years of starting operations as average airline break even based on prevalent capital expenditure typically occurs in a minimum of five to seven years of operations.

While ATF presently accounted for 30 to 35 per cent of airline operating costs, it was also relevant to note that an airline would only spend on ATF when it operates a scheduled flight and coincidently enough, that is also when it generates revenue.

Hence, airline's expenditure on fuel was directly proportionate to occupancy and load.

Commenting on the release of the study, KPMG Executive Director in India Raajeev B Batra said, ''The airline business today was one of the most complex industries. Its profitability, revenue and yield were predominately driven by economic and external factors and this makes it most vulnerable to even the slightest variation in economic growth rates, national disasters, epidemic outbreaks, terrorism, war, currency fluctuations and most importantly oil prices.

Between April-March 2007-08, both domestic and international passenger traffic in India registered a noteworthy increase. While the international passenger traffic grew at a rate of 15 per cent, the domestic air traffic grew at 23.8 per cent during the same period, which led to aircraft movement also showing an upward trend.

UNI VK GR NY RAI140