Tough days ahead for airlines: Boeing

5 Jul 2008, TNN

NEW DELHI: As oil continues its relentless upward march, US aircraft major Boeing sees difficult days ahead for airlines. While hardly any airline has business model to cope up with fuel at these levels, this is the first time in history that the increase in oil prices is happening at a time when world economy is slowing down.

"Most airlines business model are not designed and planned for these numbers (current and forecast oil prices). This time is a double problem as oil price hike is happening as the world economy slows down.

Normally lower consumption during a slowdown drives prices down. But today airlines are managing rise in operating cost with decline in revenues," said Dinesh Keskar, Boeing's senior V-P (sales). In the Indian context, Keskar said airlines have realised that low fares have no chance of ‘succeeding'. "Low fares may give one market shares but nothing concrete. Now airlines are cutting flights. Initially higher fares will mean exceeding capacity. But ultimately this will lead to airlines matching demand with supply at right fares," he added.

Boeing will present its annual outlook for India at the end of this month and remains bullish for the country. "We have always been realistic and never done a 100-aircraft deal," he added, taking a dig at a rival manufacturer's deal with a LCC here for 100 planes.

The aviation ministry is also not changing its outlook for the aviation sector's infrastructure requirement. "All the planned infrastructure projects will go ahead as schedule and there is not going to be any slowdown there," said aviation minister Praful Patel.

Patel is learnt to be extremely unhappy with states' refusal to reduce sales tax on jet fuel, something that could reduce airlines' operating costs and also put some check on the ever-increasing fares. In a bid to check the cost for passengers, the government had asked operators of new airports at Bangalore and Hyderabad not to charge any user development fee (UDF) for first there months.

Source : The Times of India