INTERVIEW-Tough times seen for India carriers till FY10

By Rakesh Sharma and C.J. Kuncheria

NEW DELHI, May 30 (Reuters) - Spiralling costs of aviation fuel, magnified by some of the highest taxes in the world, will bleed Indian carriers this year and the next, a leading aviation consultant said, but the sector would recover in 2010.

Crude oil CLc1 prices have risen over 30 percent this year to break a crucial $130-a-barrel level last week, bumping up benchmark Asian jet-fuel prices JET-SIN by over a half.

And Indian taxes ensure aviation-turbine fuel (ATF) prices are three-fourths costlier than international benchmarks. Fuel makes up 40 percent of the operating cost of an Indian carrier.

"The next 12 months will be very hostile, extremely hostile, for airlines," Kapil Kaul of the Centre for Asia Pacific Aviation (CAPA) said in an interview. "ATF will kill in 2008 for sure."

"In 2002, global oil prices were less than $20 a barrel. Indian airlines were, even at that time, not profitable. How can they be profitable at $130 a barrel?"

A wave of mergers in 2007, notably of top private carrier Jet Airways (JET.BO: Quote, Profile, Research) with budget airline Air Sahara, and Kingfisher Airlines with Deccan DECA.BO, were to have brought benefits to the sector October onwards, Kaul said.

But CAPA is revisiting its forecast after the run on crude, and Kaul, who is the chief executive for the Indian subcontinent and the Middle East, said the industry's losses in the year to March 2009 could double.

"Our assumption is that we would contine to see in excess of $1-$1.5 bln dollars losses," Kaul said, adding the industry in 2007/08 lost $700 million.