Indian carriers that are reeling under projected losses of Rs 8,000 crore this fiscal can achieve break even and become profitable despite rising jet fuel costs, says a new study by KPMG. The study suggests airlines can achieve this by focusing on process improvements, cost optimisation and by switching to a leaner business model.

Titled ‘Indian Aviation: Flying through turbulence’, the study says that although rising aviation turbine fuel (ATF) prices are taking a toll on airline profitability, it is currently not possible for any airline in Indian to make profits within three years of starting operations. This is because average airline break-even based on prevalent capital expenditure typically occurs in a minimum of 5-7 years of operations.

According to KPMG, while ATF costs would hurt airline operating costs, it could never be the reason for an airline to hold up. India operates one of the youngest aircraft fleets in the world, which makes Indian carriers more fuel efficient than globally.

“Between 2003 and 2006, world airline fuel expenses including India grew from 15 per cent to more that 25 per cent of airline operating costs. These levels presently hover between 30 per cent for airlines operating new aircrafts and roughly 35 per cent for fleets that are gradually ageing,” the report says.

“While ATF would account for 30 per cent of airline operating costs in India, it may be important to note that the only time an airline would spend on ATF would be when the aircraft intends to make a scheduled flight and coincidently that is also when the airlines generate revenue and yield. Expenditure on fuel is directly proportionate to occupancy and load. Hence, airlines in India should be focusing on maximising revenue service and constantly strategise to harness the most from maximum yield routes,” it notes.

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