There is no calm air for India’s budget airlines. A weak rupee is exacerbating the rising cost of jet fuel, squeezing already hard-pressed profit margins. SpiceJet’s quarterly earnings report today — showing a 10% drop in net profit on a 16% rise in operating revenue — is only the latest example of the strain the industry is under.
There is nothing to suggest that the coming quarter will provide any relief. Quite the contrary. At the weekend, rival Jet Airways intensified the pressure by announcing it was cutting its ticket prices for a week by more than half. That will likely trigger a slash-and-burn price war, one in which the industry fears there will be no winners. Though Jet, thanks to its recent $369 million investment from Abu Dhabi’s Etihad Airways, may now have the wherewithal to emerge the least scorched.
Rivals with flimsier and debt-encrusted balance sheets are already calling Jet’s discounting “predatory pricing.” They want it to be referred to India’s trustbusters. Worse for the industry, what would be the second price war of the year (the one SpiceJet launched disastrously in January led to the recent departure of its chief executive Neil Mills) might scare off further foreign investment in India’s budget airlines. Jet, alone in having secured a big out-of-country backer, might not be too worried about that.