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India aviation sector likely heading for another year of losses, CAPA says

Troubles at nation's biggest carrier IndiGo hurt industry prospects

IndiGo, which held about 47% of the country's aviation market, has been facing troubles with the grounding of its Airbus A320neo aircraft fitted with P&W engines.   © Reuters

MUMBAI (NewsRise) -- India's aviation industry is likely to slip into annual losses yet again this fiscal year as shrinking air fares and weaker finances at the nation's largest airline IndiGo mar prospects of the world's third-largest aviation market.

Aviation consulting firm CAPA warns that the industry is likely to post more than $600 million of losses in the fiscal year ending March 31 as IndiGo, owned by InterGlobe Aviation, grapples with safety concerns on its A320neo aircraft powered by Pratt and Whitney engines.

In June, CAPA had predicted that the industry would record a profit of $500 million to $700 million. Its optimism relied on bets that IndiGo would post a record profit of $400 to $500 million.

However, IndiGo, which held about 47% of the country's aviation market, has been facing troubles with the grounding of its Airbus A320neo aircraft fitted with P&W engines. After frequent in-flight shutdowns raised a security scare, the country's aviation regulator set a January-end deadline before which the carrier must put modified engines on its 100 A320neo jets.

In the quarter ended in September, InterGlobe Aviation reported its biggest-ever quarterly loss and cut its capacity expansion plans to 25% from 30%, citing delay in deliveries of aircraft by Airbus. Earlier this month, it again trimmed its capacity expansion to 20% to 23%.

CAPA now expects IndiGo's annual profit to be barely $70 million to $80 million. Meanwhile, smaller rival SpiceJet may "possibly be heading for its second consecutive full-year loss, while several other carriers are precariously placed," it said.

The consulting firm said its sharp cut in profit expectations is the most significant downgrade it did within one quarter in more than 16 years.

With relatively low fuel prices, strong demand, a stable rupee, and market consolidation as a result of the closure of Jet Airways, one of the largest operators, this fiscal year was expected to better for the industry. Indian airlines are competing against each other to grab the slots vacated by Jet Airways which collapsed earlier this year.

"The potential benefits of consolidation and capacity rationalization in the wake of Jet's demise, and relatively benign fuel prices, have largely been squandered," CAPA said. "Carriers pursued very aggressive expansion in an effort to capture slots released by Jet, resulting in downward pressure on yields."

Shares of InterGlobe rose 0.5% in Mumbai trading on Tuesday, while that of SpiceJet added 2.1%. The benchmark S&P BSE Sensex lost 0.4%.

--Dhanya Ann Thoppil

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