Fuel price hike: Airline sector suffers huge losses

India's crowded airline sector is flying into huge losses on the back of a surge in global fuel prices that has forced it to hike fares, slowing explosive passenger growth.

Its woes pushed the airlines to a combined loss of 938 billion dollars in the fiscal year to March 2008 and Aviation Secretary Ashok Chawla says the figure could double this year if oil prices remain at current levels.

The forecast represents nearly a third of total global losses of 6.1 billion dollars projected by the International Air Transport Association last week if oil stays around 135 dollars until year end.

"Aggressive consolidation is inevitable," said aviation consultant Kapil Kaul, who sees a shakeout in India, where a rush of new carriers created overcapacity and led some airlines to offer fares cheaper than train tickets.

"There will be exits, strategic alliances, airlines will have to work out how to share resources and rationalise route networks so carriers complement each other rather than compete," Kaul said.

Right now India's airlines are losing an average 30 dollars a passenger, said Kaul, India head of the Centre for Asia Pacific Aviation.

Cheaper fares amid an economic boom created a massive migration in the past few years from India's congested trains to planes that revolutionised travel in the country of 1.1 billion people. But that shift is losing pace.

With fares costlier, domestic air passenger traffic climbed just 8.7 per cent in April from a year earlier -- the slowest rate in four years -- as travellers switched back to trains and cars or opted not to travel.

Short-haul routes have been particularly hard hit as people turn to cheaper transport. Passenger growth now is far slower than the annual 25 per cent expansion the government forecast until the end of the decade.

"Before, you might have flown to your cousin's wedding. Now you think twice," said a senior airline official who asked not to be named. "We're getting just 50 per cent occupancy on some routes when it should be 80 per cent or more."

India has five main carriers including the biggest domestic carrier Jet Airways, Kingfisher and state-run Air India along with a clutch of smaller airlines.

"We should see these things (consolidation and route rationalisation) start happening by July, August when the (Indian) offpeak season starts," said Kaul. "But the next 12 to 18 months will be very hostile."