Cut flab, not shut shop, KPMG tells India's loss-making aviation sector

According to a KPMG report titled "Indian Aviation: Flying Through Turbulence," the industry's losses were due to huge investments made by the carriers on the fleet and support facilities and it would take 5-7 years to break even.

Support facilities come under indirect operating costs, which include marketing, distribution, ground handling, terminal operations, network operations, routing, administration, training, and cost finance and cost management.

"India operates one of the youngest aircraft fleet in the world and, with new and more efficient engines, airlines gain from low fuel burn and improved operating efficiency," the report said.

However, "Since a majority of India's airlines are today in their third or fourth year of running, it becomes near to impossible for break-even to occur any time before 2009 or 2010," it said.

ATF, the report said, accounts for about 35 percent of a carrier's operating costs and "an airline's expenditure on fuel is directly proportionate to occupancy and load."

"The airline business today is one of the most complex industries. Its profitability, revenue and yield are predominately driven by economic and external factors and this makes it most vulnerable to even the slightest variation in economic growth rates, national disasters, epidemic outbreaks, terrorism, war, currency fluctuations and most importantly oil prices," said Rajeev Batra, executive director, KPMG, in a press statement.