SpiceJet has joined the club of three listed airlines to receive a ratings downgrade this month as fuel price hike along with rupee depreciation continue to put pressure on profits as airlines are unable to increase fares amid stiff competition.

Crisil has downgraded its ratings on the bank facilities of SpiceJet to ‘Crisil BB-/Negative/Crisil A4’ from ‘Crisil BBB/Stable/Crisil A3+’, the ratings agency said.

The downgrade reflects Crisil’s belief that SpiceJet’s operating performance will remain under pressure in the near to medium term, driven by significant increase in the operating cost and limited ability to pass on the increased cost to customers due to intense competition. “Further, SpiceJet was expecting some cash infusion from the sale and lease back transactions that got delayed due to late delivery of the new aircraft. Hence, liquidity profile has weakened,” Crisil said in a report.

Aviation turbine fuel (ATF) prices increased by 10 per cent and the rupee depreciated 7.9 per cent over the last three months. ATF is a major cost and accounts for 35-40 per cent of total operating costs while 35-40 per cent of costs (lease and maintenance) are dollar denominated. Despite such a sharp increase, airlines could not increase prices due to intense competition, with the second quarter being inherently weak, Crisil said.

India’s largest airline Indigo also received a ratings downgrade last week from ICRA for similar reasons.

“ICRA Limited” has revised the Company’’s long term rating to [ICRA] A+ (negative) from [ICRA] AA (stable). ICRA has stated that this rating action takes into consideration the significant depreciation of the Indian Rupee coupled with a sharp rise in global crude oil prices. However, ICRA has also noted that the Company’’s competitive cost-structure coupled with its liquidity position places it in better position to overcome this phase as compared to other domestic airlines,” Indigo said in a statement to stock exchanges last week.

This puts all three listed airlines Jet Airways, IndiGo and SpiceJet on a negative rating from either stable or positive ratings. Indigo, the only profitable airline among the three depleted nearly all its gains in the first quarter, driven by high costs and nearly flat yields.

Jet Airways, on the other hand, is going through its toughest financial crisis wherein the airline booked more than ₹1,000 crore of losses in in two consecutive quarters and has been delaying salaries to pilots and senior executives. The airline was been last downgraded early this month.

Due to high competitive intensity, players have not been to increase their yields to mitigate cost pressures leading to decline in operating margins.

“The domestic airline industry is highly competitive, underpinned by frequent entry of new players and significant fleet addition by existing ones. During fiscal 2015, the industry saw the launch of services by Vistara and Air Asia India followed by addition of new players such as Air Carnival, Air Costa, Air Pegasus, TruJet, and Zoom Air over the 12 months through March 2018. Furthermore, factoring in current fleet addition plans, industry fleet size is estimated to grow to around 1,500 aircraft by fiscal 2025 from the current 500. These factors potentially expose the industry to intense price competition and adversely impact PLFs,” Crisil said.

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