2009: A year of rough seas and air pockets

It was a rough flight for the airline industry last year as demand tumbled, pilots agitated, debts rose, and dues to creditors mounted as cash flow turned to trickle.

Throughout most of 2009, local carriers were cash starved as demand turned extremely elastic. In such a scenario, losses of leading airlines Jet and Kingfisher mounted to Rs 1,602 crore and Rs 1,032 crore, respectively, in 2008-09.

Jet and state-owned Air India faced the ire of pilots as they embarked cost cutting. They ran huge losses as pilots went on mass sick leave. It was also a year, when airlines ruthlessly reduced their fleet sizes to match demand.

The year saw airlines making desperate bid to afloat. Full service carriers (FSCs) Kingfisher Airlines and Jet Airways overhauled their business models to include more all-economy flights. They took on the budget carriers, which were eating into their market as demand for business and premium class travel plunged.

But most of the bad news was in the first half of last year. Towards the later part of 2009, domestic airlines were slowly emerging out of the turbulence and most of them ended the year with profits as demand picked up and fares soared. The number of passengers carried by domestic airlines in 2009 jumped 7.86% to 445.13 lakh against 412.71 lakh in 2008.

“Keeping capacity in check, a rise in demand and stable fuel prices helped Indian carriers carry record passengers in December,” said Dinesh Keskar, president, Boeing India.

And, as that happened, financials of airlines turned positive with Jet registering net profit of Rs 106 crore, with two third of its revenues coming from its low cost subsidiary JetKonnect. No-frills airline Spicejet also reported profits of Rs 109 crore and
Kingfisher Airlines managed to earn Rs 15 crore operating profits on its domestic operations.

The trend in the shipping sector was also as choppy. Last year, global recession hit the trade activity massively and the worst affected has been the shipping industry. Not only did trade dry off, even the availability of funds was an issue.

As shipping is not recognised as infrastructure, financial institutions are reluctant to give funding. While the shipping industry was dealing with the blow of funds drying up, the freight rates came crashing down due to lack of demand.

The Baltic Dry Index (BDI) reached its lowest point in August (2421) after witnessing a drop of 44% from the year’s high of 4291 on June 3 to.

This drop was attributed to China reducing raw-material imports and a record number of new vessels are setting sail leading to overcapacity. The China factor not only got the BDI crashing but also has been the main contributor to the drop in shipping rates.

While the commodities trade was suffering the instability in oil prices also led to stagnation in the day rates of rigs, which started to idle due to a slowdown in the offshore activities. These factors led to massive order cancellations for the ship building yards and the order book size started to shrink.

However, due to the winter effect the BDI once again stabilised and the offshore activity took off as oil reached around $75-80/barrel. There was renewed interest for offshore vessels and jack up rigs. Companies started to aggressively market their idle rigs and things for now started to look up.

However, the lack of funds and slow process of the government in releasing the subsidy claims of the shipbuilders is still a worrisome factor.

The volatility in China’s import of iron core and the oil prices still hounds the shipping industry, which is all set to deal with the overcapacity caused by the new ships and more-or-less stable demand.