The International Air Transport Association (IATA) has advised the Indian Government to set domestic carriers free from policy interventions. It wants the Government to refrain from micro-managing the aviation industry, such as in ticket pricing.
IATA has projected a dismal picture for the global aviation industry in 2012 with a fall in profitability and profit margin. However, it believes airlines in Asia-Pacific will be in a better situation in comparison to their global counterparts. IATA represents 240 airlines accounting for 84 per cent of global air traffic.
Mr Tony Tyler, Chief Executive Officer and Director General, IATA, said, “Indian Government should focus on safety, security and commercial freedom of the industry, reduce or eliminate taxes on jet fuel and make effort for expansion of infrastructure such as Mumbai Airport and air navigation system.”
Jet fuel contributes up to 45 per cent in operating cost for an Indian carrier in comparison to 30 per cent for any international carrier.
Mr Brian Pearce, IATA's Chief Economist, added that there was enormous potential for the Indian carriers. Domestic demand is strong. “We see the travel is very low, but potential is very high. Now it is a challenge for the Indian carriers to be profitable,” he said.
The three listed domestic carriers — Jet, Kingfisher and SpiceJet — posted losses for the quarter ended September 30.
Global Scenario
The global travel body has lowered the estimate of profitability to $3.5 billion in 2012 with a net margin of 0.6 per cent from $4.9 billion as announced in September. It has kept profitability unchanged at $6.9 billion for 2011.
“The biggest risk facing airline profitability over the next year is the economic turmoil that would result from a failure of governments to resolve the euro zone sovereign-debt crisis. Such an outcome could lead to losses of over $8 billion — the largest since the 2008 financial crisis,” Mr Tyler said.
Global GDP forecast for 2012 has been revised down to 2.1 per cent.
Historically the airline industry has seen profits turn into losses whenever global GDP growth falls below 2 per cent. This is driving the downgrade in the 2012 outlook, Mr Tyler said.
Passenger demand is expected to grow by 4 per cent from an early projection of 4.6 per cent while cargo is expected to show flat growth (down from previous 4.2 per cent expansion).
Passenger and cargo yields are expected to remain flat in 2012.
Industry revenues are expected to grow by 3.7 per cent to $618 billion. This will be outstripped by cost increases of 4.5 per cent to $609 billion, IATA said.