Oct 24, 2008

Business - Indian airline sector to 'shrink'

Neil Heathcote
Editor, India Business Report, BBC World, Hyderabad

Half of India's airlines could disappear during the current downturn, Air India boss Raghu Menon has told BBC News.

The chairman of the country's flagship carrier, Air India, believes that no more than four or five airlines will still exist once the downturn is over.

"A process of further consolidation may take place," he said, soon after rivals Jet and Kingfisher signed an alliance.

India's loss-making airlines are seeking $1bn (£500m) in government aid.

"It's really been one bad thing after another for quite some time," said Mr Menon in an interview with India Business Report.

"What really hit us badly was the constant and dramatic rise in fuel costs from April to August.

"Five continuous months? I don't think that sort of hit is something any industry can bear."

New challenge

In common with other airlines in South Asia, Air India is battling a slump in demand triggered by rising ticket prices and the economic slowdown.

Cost cutting is inevitable, though so far the industry's efforts to do have been controversial.

Earlier this week, two of Air India's biggest rivals - Jet and Kingfisher - announced they were forming an alliance, in an effort to stem their losses.

Together they will control half the market, posing a serious challenge to the national carrier.

"We were competing with both these airlines separately," said Mr Menon.

"Now we'll be competing with them perhaps as one entity.

"It'll be a challenge."

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