First Biofuel Flight in South Asia Resonates During Cost Crisis

by Neelam Mathews

 - August 28, 2018, 10:09 AM

The first biofuel technology demonstration flight ever performed in South Asia on August 27 served as a reminder of how the fast the increasing price of turbine fuel has come to hurt yields among several Indian airlines. At the event, Indian Minister for Road Transport and Highways Nitin Gadkari said such awareness will soon lead to a policy on biofuels derived from non-edible oils for powering jet, marine and road engines. 

The fuel for the 55-minute flight in a SpiceJet Bombardier Q400, performed under its “Green Miles” initiative, consisted of a blend of 75 percent aviation turbine fuel and 25 percent biofuel derived from Jatropha seeds and produced by the Indian Institute of Petroleum. Gadkari said the biofuel policy will call for a 12-year program involving identification of areas for farming, incentivizing farmers to grow the crop on a continuous basis, setting up the industry, and transfer of technology for industrialization.

Meanwhile, the airlines continue to struggle financially. The depreciation of the Indian rupee and taxes places “great stress on the aviation sector,” said SpiceJet chairman and managing director Ajay Singh. Domestic Indian carriers pay for maintenance, leases, purchases, and fuel in U.S. dollars.  “Presently, there are issues of rapid growth and lack of infrastructure, and excess capacity with major carriers chasing the same routes,” Singh added. “We need a 10- to 15 percent increase in yields to cover costs.”

Singh told AIN that ancillary revenues from sources such as selling food in-flight accounted for 17 percent to 18 percent of earnings, far less than the global industry’s average. As online retail in India grew by 22 percent, to $17.8 billion in gross merchandise value in 2017, belly space in airlines has become limited. In response, SpiceJet might soon announce plans to operate a converted Boeing 737 freighter to serve satellite cities or an international destination in South East Asia, a cargo official told AIN.

SpiceJet’s plight reflects a generally dismal financial state of Indian airlines. Fellow Indian domestic carrier Jet Airways, which generated a loss of more than $199 million loss in its first fiscal quarter ending June 30, plans more than $300 million of cost reduction measures over the next two years, targeting maintenance, distribution, fuel consumption, debt and interest, and manpower productivity.

The effects of the depreciation of the Indian currency and the aggressive fare environment has even hurt successful budget carrier IndiGo, which suffered a 97 percent decline in profits year-over-year last quarter. National carrier Air India, carrying debt of more than $7 billion, cannot find buyers and is said to be operating under financial duress.