Burdened with a depreciating rupee and rising operating costs, Indian Airlines has again hiked its fares, this time by just over 11%. The latest rise, which took effect at the start of October, is the tenth since 1990 and comes less than a year after the airline last announced a price increase.
The airline's management says that it is aiming to cover the increase in operating costs rather than shore up the bottom line, but many in India are unconvinced. Critics suggest that the carrier has taken the fare hike route too many times to bridge the gap between expenditure and revenue, and has done little to reduce its wage bill or other operating costs. Staff costs have more than doubled during the past four years, but productivity has remained virtually unchanged.
Besides the wage increases, the carrier argues that it has faced steep rises in navigation charges and maintenance costs, while aircraft financing has been hit hard by currency devaluation and "upward spiralling dollar costs". Overall, the airline estimates that its costs have been pushed up by more than Rs2.1 billion ($50 million) this year.
The fare increase would bring in estimated additional annual revenue of nearly Rs2 billion, still leaving a shortfall of some Rs190 million. This will be bridged by an austerity drive. The airline has already initiated several steps to reduce costs, including a ban on most overtime work, the closure of duplicate booking offices and a freeze on all new capital expenditure.
The carrier holds out little prospect of any pick-up in traffic over the foreseeable future as it struggles against the backdrop of currency devaluation, downturn in the Indian economy and the fall-out from the crisis in South-East Asia.
The slowdown has taken its toll, just as the carrier appeared to have turned the corner, posting a Rs410 million profit for 1997/8 after a dry spell of eight years. It has, however, run up losses of nearly Rs230 million over the first five months of the current year and does not now expect to meet its full-year profit target of Rs827 million.
Source: Airline Business
