The sad story of airlines - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

The sad story of airlines

Apr 17, 2009

Aviation is arguably among the most difficult industries from the owner's perspective. It suffers from disadvantages in both input costs and pricing power. The highly capital intensive nature of operations and vagaries of crude oil prices make costs hard to control. The presence of many competitors and commoditisation of tickets due to travel portals exert a great deal of pressure on ticket prices. Little wonder then, that bad news continues to pour out from the Indian civil aviation sector. As per DNA Money, airlines have not hiked fares despite 3 hikes in aviation turbine fuel prices in the last 45 days to the tune of 18%. Airlines fear any hike will reduce air traffic which has already declined on a YoY basis. Basically, any hike in prices in nullified by decline in volumes, a tell tale sign of a commodity market.

Another article in the Business Standard reports how foreign airlines are pulling out of India. Apparently, high airport charges and a decline in premium inbound traffic has exerted a severe pressure on margins. In fact, leading international airlines have cut back on over 100 flights in the last 6 months. While the global slowdown has an impact on the aviation industry worldwide, the cost structure in India seems to be particularly bad. As per the article, airport charges are declining anywhere between 10% and 50% worldwide, but increasing in India to the tune of 10%.

In another story, The Economic Times reports that Jet Airways, one of the leading Indian carriers, is all set to cut nearly 400 jobs as part of a restructuring exercise. It plans to do away with offices in multiple cities and centralise back end operations to its Mumbai location. It also plans to automate services like passenger check in a bid to reduce the employee count.

While some of these factors might seem unique to the present circumstances, we believe the structure of the industry does not allow owners to breathe easy. During a boom, airlines suffer from over supply and skyrocketing fuel prices. During a bust, they struggle to fill the seats. Not the kind of business a long term investor would want to be in.


Equitymaster requests your view! Post a comment on "The sad story of airlines". Click here!

1 Responses to "The sad story of airlines"

Mandar Vaze

Apr 20, 2009

Airline is a real bad business these days. Gone are the days when they were charging hefty price for carrying people around. Once schedule is announced, the aircraft has to fly. This puts downward pressure on prices airlines offer steeply discounted prices just to cover variable cost + tiny recovery of fixed cost (if they can). Its all good news for passengers as long as (and I hope so) they do not cut down on saftey related expenses.

Like 
  
Equitymaster requests your view! Post a comment on "The sad story of airlines". Click here!

More Views on News

What You Should Know About the India Vix (Fast Profits Daily)

May 29, 2020

The India Vix is one of the most commonly tracked numbers in the stock market. But what does it mean and how can you use it? In this video, I'll show you what the Vix is all about...

The Locusts Are Coming! Are You Buying the Right Stocks? (Profit Hunter)

May 29, 2020

The locust swarm has produced winners in the stock market. Read on to know more...

These Stocks Can Make You Incredibly Rich in 2020 and Beyond podcast (Views On News)

May 28, 2020

Good quality stocks do not give good long term returns all the time. We take a look at the important factor that influences stock market returns other than business quality.

Why Aditya Birla Sun Life Mutual Fund Stopped Accepting Fresh Investments In Its Two Debt Schemes... (Outside View)

May 28, 2020

This Daily Wealth Letter, explains the key reasons why Aditya Birla Sun Life Mutual Fund has temporarily suspended in two debt schemes -- Aditya Birla Sun Life Medium Term Fund and Aditya Birla Sun Life Credit Risk Fund.

Why We Picked This Smallcap Stock for a Post Coronavirus World (Profit Hunter)

May 28, 2020

Covid-19 has made it a survival of the fittest race for many companies. The ones that can adapt will thrive in a post crisis world.

More Views on News

Most Popular

What the RBI's Rate Cut Means for Options Traders (Fast Profits Daily)

May 25, 2020

The RBI governor has cut the repo rate to 4%. What does this mean for options traders? Find out in this video.

6 Charts Showing the State of Indian Financial Markets in 2020 (Sector Info)

May 26, 2020

Six charts showing how Indian financial markets have performed in 2020 so far...

This 'Essential Product' Smallcap is a Must Have for a 'Covid-19' Immune Portfolio (Profit Hunter)

May 19, 2020

This smallcap company needs no stimulus measures to do well in the long term.

Which Stocks Should You Buy, Sell, and Hold in the Market Today? (Profit Hunter)

May 21, 2020

The coronavirus led uncertainty refuses to go away from the markets. Here's what retail investors should do with their stocks...

More

Get Rich as the
Market Rebounds from Covid-19

Coronavirus Rebound
Get this special guide, authored by Equitymaster's top analysts, now.
We will never sell or rent your email id.
Please read our Terms

S&P BSE SENSEX


May 29, 2020 03:23 PM

MARKET STATS