Fuel price worries continue to dominate matters for airlines in India, Turkey, Indonesia, Brazil and South Africa. Currency exchange rate weakness against the US Dollar continues to prevail despite government interventions with interest rate raises. Airlines in those five countries will now have to rely upon their home governments increasing subsidies, which in turn will put strain on public finances.
This cocktail is most worrying for Indian aviation, which is already weak. Indian airlines, currently locked in a low-season price war will seemingly soon be locked into one all year around once the new low-cost airlines begin flying later this year. With falling passenger demand and capacity increasing against already weak balance sheets one wonders about the domestic Indian airline market more than ever. Intelligent combined fuel and FX hedging is more important than ever.
We here have repeatedly made mention of consumer weakness in India, where consumer price sensitivity is astounding. The moment airlines add the slightest amount to fares, their forward bookings fall. So it is of interest to note that when New Delhi increased diesel prices in 2013 consumption fell almost immediately and has continued to do so ever since. It is clear the Indian consumer is highly attuned to price rises, so again, what is the future for an Indian airline market with rapidly increasing capacity and falling demand and falling prices? The answer from most industry watchers is consolidation through airline failure.