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Airlines Need to Raise Fares By 30%: Goyal

July 2, 2008

By Saurabh Sinha

NEW DELHI: The days of high level connectivity across the country with a choice of reasonably-priced flights are numbered. Jet Airways chairman Naresh Goyal on Monday said Indian carriers have 30% excess capacity flights and are selling tickets 30% below break-even levels. And unless the industry, that collectively could lose as much as Rs 10,000 crore this fiscal, cut flights and raise average fares by 30%, the situation will remain “very bad,” warned Goyal.

“The 40-50% growth recorded in past few years is unreal. Jet never added more than 8% capacity annually. Unless the irrational ticket prices are stopped, the industry is in trouble,” the London- based NRI, who has been camping in Mumbai for past few days, told TOI.

He also denied all talk of talking to big industrial houses for selling stake. “We are going to raise through loans and funds. All airlines need to raise money but no one can continue with below cost price tickets,” Goyal said.

Aviation turbine fuel (ATF) prices have been rising constantly since last November, though the real upswing has started from this April ever since crude began its relentless climb. Attracting both higher base price and taxes, ATF today accounts for nearly half of Indian carriers’ operating costs. Fuel surcharge has increased from Rs 1,650 in March to as high as Rs 2,900, a figure that may be revised very soon. In June alone, airline hiked fares twice – once fuel surcharge and the base fares.

“Looking at where fuel and other costs are going, these hikes have not helped. Selling tickets for Rs 199, Rs 299 or Rs 499 like Bata shoes has not helped the industry. Average fares need to go up 30% and excess capacity pruned by an equal amount,” Goyal said. But the flip side of raising fares has been a steady erosion in growth of domestic fliers. All Indian airlines are making losses with the collective figure believed to be Rs 4,000 crore in 2007-08. While Air India leads the pack with expected losses of over Rs 2,100 crore, big airlines are losing about Rs 8-10 crore a day.

Along with Air Sahara that was acquired last April, the Jet Group recently posted a loss of Rs 654 crore for 2007-08 in which Jet Airways’ share was Rs 253 crore.

In such a situation, all airlines have kept their plans to tap market for funds on hold. Jet’s board had this January approved raising further capital of up to $800 million to fund their growth plans. With entire Indian aviation being in similar condition – making huge losses and desperate for funds, Goyal has now warned that both capacity pruning and raising of fares would be needed to tackle growing losses.

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