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Airlines, medical tourism and more... - Views on News from Equitymaster
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  • Aug 19, 2008

    Airlines, medical tourism and more...

    Oil nudges higher
    The movement of crude oil prices continues to be highly volatile. Fears of the tropical storm Fay hitting the Gulf of Mexico and subsequent evacuation of staff by the oil behemoth Royal Dutch Shell caused crude prices to scale a tad bit higher yesterday. The US dollar slipping against the Euro also helped prop oil prices. Having said that, the US$ 114 a barrel, at which oil prices settled yesterday is still considerably below the high of US$ 147 a barrel that was attained on July 11. Some statements from the OPEC have also helped ease prices. For instance, the organisation expects appetite for oil this year to grow by 1 m barrels a day, a reduction of 30,000 barrels a day from its previous forecast for growth in demand for 2008. It also expects demand to rise by 900,000 barrels a day in 2009, which would be the lowest growth in world demand since 2002.

  • Also read - Oil to hover at US$ 124 per barrel in 2009

    Some breather for airlines?
    The airlines industry in India is in a state of turmoil. Rising crude prices have hiked up the prices of aviation turbine fuel (ATF) and are considerably hurting domestic airline companies. As a consequence, the ministry of civil aviation plans to implement some measures and provide some sort of relief to the beleaguered airline industry. These include looking for foreign airlines' investment in domestic airline companies, relaxation of the current FDI limit of 49% and removal of the five-year mandatory domestic operation clause for a carrier to become eligible to fly overseas.

    Soaring prices of ATF and the inability to pass on the hike proportionately to customers have made airline companies strapped for cash. Thus, investment by foreign airlines in domestic carriers will provide the latter the much needed funds. Rationalisation of taxes is also high on the agenda given that industry losses are expected to swell to a gargantuan Rs 100 bn.

    Globally too, airline companies have been on the receiving end due to spiraling crude oil and jet fuel prices. In fact, the Economist states that seven of America's biggest airlines reported combined losses of US$ 5.9 bn in the second quarter of this year. While oil prices have considerably come off their highs, it remains to be seen whether airlines companies will be able to move back into the positive as a result. While retreating crude prices is certainly a welcome relief, the industry is still saddled with excess capacity. The Economist states that in June 2008, global capacity rose by 5.5% while passenger traffic lagged behind at 3.8%. Whatever the case, given that the movement of oil prices is considerably volatile, both global and domestic airline companies will have to focus on pruning capacity and implement cost effective measures to become leaner and stronger.

  • Also read - Why so many Indians vacation abroad?

    Healthcare goes global
    While rising healthcare costs have spurred the usage of generic drugs, the same is also expected to accentuate medical tourism especially in developing economies including India as patients around the world look to minimise costs. As far as India is concerned, Wockhardt Hospitals states that while medical value travel contributes only 0.9% of the total hospital revenues, the same is expected to touch approximately US$ 1.4 bn and contribute more than 2.5% of the total hospital revenues by 2012.

    Having said that, most of the foreign patients are from developing countries such as Afghanistan, Pakistan, Nepal, Bangladesh and Sri Lanka as these countries lack top-quality hospitals and health professionals. In fact, patients from the US and Europe are relatively few. This could however change going forward, given that a large number of Americans are traveling abroad to get treated. For instance, the Economist states that the consultancy firm Deloitte expects the number of Americans traveling abroad for treatment to soar from 0.8 m last year to 6 m by 2010 and reach 10 m by 2012. This is likely to translate into US$ 21 bn a year to developing countries in around four years and India could also be a beneficiary of the same.

    International patients flock to India largely because of the substantial difference in the cost of high-end surgery and critical care and quicker access to medical care in India vis-a-vis some highly developed countries. To put things into perspective, an open-heart surgery that costs US$ 100,000 in the US, over US$ 40,000 in the UK and US$ 14,250 in Thailand, costs just US$ 4,400 in India.



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