The long-awaited clear out in the overcrowded Indian domestic market appears close at hand, with the owners of at least one private operator considering pulling out of the business.

As the private domestic operators report declining load factors and plunging profits, the owner of Damania Airways is seriously considering pulling out of the market. 'If there is a proper offer, I will look at it,' says Parvez Damania, managing director of the airline, valued at some Rs1.4 billion ($44.5 million).

Sources at Damania say management is holding talks with interested parties, including textile group Raymond Woollen Mills, which has appointed former Damania director Jahanngir Damania as advisor and is also understood to have brought in Andersen Consulting.

Excess capacity lies at the root of the problem with available seats on domestic sectors rising to 50,000 per day against a demand of around half that figure. A ban on the acquisition of large aircraft is doing little to restore the balance between supply and demand. The government policy aimed at maintaining proper air links throughout this huge country, which forces the private operators to commit 50 per cent of capacity to non-trunk routes, has also led to problems: 'We are losing money on many of the non-trunk routes,' admits Jet Airways.

Domestic operators are being crippled further by heavy tax burdens. After dropping a 15 per cent surcharge on jet fuel for domestic operators last year, the government reimposed the levy at a level closer to 25 per cent in this year's budget - fuel costs already amount to 30-40 per cent of total costs. Moreover, both East West and Damania have felt the full force of the law when each carrier had an aircraft impounded for non-payment of Inland Air Travel Tax, which adds 15 per cent to the price of all tickets. A Damania insider admits that in the first half of 1994/95 profits of Rs30 million, on a turnover of Rs940 million, came from other income.

A further shadow looming over the current players is the prospect of a 60:40 joint venture carrier between Indian conglomerate Tata Industries and Singapore Airlines, slated for startup end 1995. The partners have already sought clearance from the Foreign Investment Promotion Board and has asked manufacturers to re-tender for an order of up to 16 150-seat aircraft. Startup capital is now Rs18 billion ($570 million) - huge by Indian airline standards.

Private operators have started lobbying against the proposed carrier based on the current levels of overcapacity. Share values have slumped accordingly; by mid-April East West's stock was trading at Rs20, Damania was down to Rs30 a share and ModiLuft slipped Rs31 from Rs37.

Source: Airline Business