Weak rupee adds to woes of ailing airlines

Mumbai | Updated on November 15, 2017 Published on June 06, 2012

The 25 per cent rupee depreciation and the 40 per cent hike in crude oil prices over the past year have exerted pressure on the profitability of airline companies in the country.

Fuel costs account for 45-50 per cent of operating costs.

Operational costs

“The primary reason for the losses is on account of a large share of expenses (almost 60-70 per cent) of the carriers being accounted for in dollars.

As a result, fuel and operating cost have increased at a fast pace,” Mr Ajay D'souza, Director, CRISIL Research, said.

He added, “Around 30-35 per cent of a carrier's operating costs are denominated in dollar.

The rupee depreciation against the dollar has pushed up the operational cost for carriers.

A weaker Indian currency translates into higher costs for the carriers as they have to pay more towards lease rentals, ticket reservation using the global distribution system (GDS), aircraft spare parts, salaries of expatriate pilots, higher interest cost on foreign currency debt and other costs borne in dollars.”

Ticket prices

On the other hand, only a handful of them earn revenue from international operations, thereby, providing them a natural hedge.

However, even for these players, stiff competition has led to average ticket prices remaining flat.

Cost increases have not been passed on. For instance, losses for Jet Airways increased 140 per cent in the fourth quarter of 2011-12 to Rs 298 crore.

Similarly, SpiceJet reported over four-fold rise in net loss at Rs 249 crore during the same quarter.

Two of the main carriers (Air India and Kingfisher) have severely curtailed flights.

As a result of the capacity crunch, air tickets prices have gone up.

“While average ticket prices on the domestic routes have gone up, it has not been sufficient to offset the steep increase in cost,” Mr D'souza said.

The hike in ticket prices has led to domestic air passenger traffic growing at a mere 7 per cent in January-March 2012 quarter.

This growth is much lower than the 16 per cent growth recorded in the first nine months of 2011-12.

According to the Centre for Asia Pacific Aviation (CAPA), Indian carriers made a combined industry loss of $2.5 billion in the year to March 31.


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Published on June 06, 2012
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