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South Asia: The good news is losses have declined significantly and three Indian LCCs ended the year

Airline Leader

India's airlines have seen a significant improvement in their financial performance over the last year, and the positive momentum is expected to continue. Air India's losses are estimated to have declined to USD500-600 million. In other markets in South Asia, where state owned carriers dominate, the outlook is not as encouraging.

The combined losses of airlines in India, by far the largest market in the region, are estimated to have declined by more than 75% from USD1.3 billion in FY2015 to USD250-300 million in the 12 months ended 31-Mar-2016. India's three leading LCCs, IndiGo, SpiceJet and GoAir are expected to report a combined profit of USD360-375 million.

Jet Airways is expected to be the only profitable full service carrier and could announce full year net earnings in excess of USD100 million. Air India will be the major source of red ink at around USD500-600 million. Nevertheless, this will be its lowest net loss in several years, and the carrier will post an operating profit, which will be dragged down by its high interest burden.

The newer airlines in the market, Air Costa, AirAsia India and Vistara are expected to post losses of USD75-80 million.

The improvement in airline financial performance, largely the result of lower oil prices, has been the key strategic highlight of the last year. This includes the dramatic turnaround at SpiceJet, an airline that was on the verge of closure in Dec-2014 but which is expected to announce a record profit for FY2016. Meanwhile IndiGo, which has been India's most profitable airline in recent years, completed a highly successful listing in Nov-2015 and posted a record profit of USD300 million in FY2016.

Looking ahead to FY2017, with the economic outlook remaining positive and fuel prices remaining low, the four largest private airlines in the country, IndiGo, Jet Airways, SpiceJet and GoAir, are all expected to remain profitable. However carriers will need to remain alert to potential downward pressure on yields as a result of expected rapid capacity increases. Indian carriers could induct 50-60 aircraft in the 12 months to 31-Mar-2017, with more than half of these accounted for by IndiGo and GoAir. Some of these aircraft will be used for replacement rather than growth, for example GoAir could replace all 19 of its current aircraft to have an all-neo fleet by the end of FY2017. Nevertheless, increased capacity could depress average yields by 5% or more.

The situation among India's neighbours is less encouraging. Pakistan International Airlines has been in need of restructuring for some time to address its continuing losses. In the latter part of 2015 the government announced plans for partial privatisation but faced with strong political opposition and industrial action, this initiative was shelved.

Meanwhile SriLankan Airlines has indicated that it is unable to service its debt of around USD3.2 billion, leaving the government with some critical decisions to make on the future of the airline, which could include seeking a strategic partner. And at Biman Bangladesh, political interference has resulted in frequent changes to members of the board and senior management, leaving the carrier with a lack of direction.