Wednesday, May 28, 2014

Of Domestic Airlines and their bleeding cash flows

Over the last one year or more, domestic airfares have been incredibly high. There are some low fare tickets, but those are typically less than three percent of seats on offer. In fact the fares in India are higher than the corresponding domestic fares in US or other countries.
Given that the revenue side is the same, are costs higher for Indian companies? Fuel is at global prices or slightly higher, but not so high as to warrant a deep dent in the revenues. Most other costs including salaries would be lower for Indian companies.
Global airlines have been reporting profits. Indian companies are reporting record losses!!

What could be the reasons?
i) My assumptions are wrong and domestic airlines are headed to the graveyard, taking with them their lenders and shareholders;
ii) Their revenues are diverted elsewhere either as booking commissions or by selling tickets in bulk to privately owned entities, which then hawk them at far higher prices;
iii) Lot of costs are overstated and moneys siphoned off:
iv) Lot of functions are outsourced at fancy costs to promoter owned  entities .

Something is fishy.

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