$1.65-1.90 billion

Indian Airlines Descending Into the Red, Losses of $1.65-1.90 billion in FY19 Estimated

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CAPA India, an industry consultancy, came up with a report on Indian Aviation recently: 

– That Indian airlines are expected to report losses of $1.65-1.90 billion in FY19,

– That airlines will need to adjust to a new normal of higher costs and excess capacity. This may take time. 

Until then, industry losses are likely to increase manifold. 

Another ratings firm CRISIL has said :

– That Indian airlines may plunge into their steepest loss in a decade this financial year, 

$1.65-1.90 billion
Spicejet turbo prop aircraft

– At an estimated ₹93,000 million, the industry’s losses at EBIT (earnings before interest and tax) level would surpass the ₹73,480 million blow it was dealt in fiscal 2014

– Airlines in the country posted “aggregate profit of ₹40,000 million on an average at the EBIT level from FY14 to FY18, when global crude oil prices stayed low

– With ATF prices expected to average 28% higher on-year compared with fiscal 2018, the impact will be significant,

– A weak rupee adds to the woes of airlines since most of the airlines’ expenses are in dollars while aviation turbine fuel (ATF) accounts for 35-40% of the total cost of airlines.

– The combined effect due to this is much more severe because the rupee has depreciated 13% against the dollar since March 2018

Indian airlines have not fared very well due to such costly factors during the last few months. Intense competition has also taken its toll. It has prevented them from raising the air-fares adequately to cover the increased costs. 

Meanwhile, the government’s recent move to cut the excise duty levied on jet fuel by 300 basis points to 11%, is not expected to provide much relief to airlines. One hundred basis points equal one percentage point.

Crisil Ratings’ senior director Sachin Gupta shared his views:

– Almost two-thirds of an airline’s cost, and therefore profitability, is susceptible to fluctuations in forex rates and ATF prices,$1.65-1.90 billion

– To offset the increase in operating cost, the industry will have to raise average fares by 12% – that too – assuming there is no change in the passenger load factor (PLF),

– That the “aggressive expansion plans of carriers and the race to maintain high PLFs will keep competitive intensity high and limit their ability to increase fares.

Among the listed airlines, InterGlobe Aviation Ltd, which runs IndiGo, saw its first quarterly loss since it went public, in the September quarter at ₹652.13 crore, compared with a year-earlier profit of ₹551.56 crore. Its CEO R Bhatia had to email its employees, “Please bear with us.” (Read: IndiGo CEO)

Jet Airways and SpiceJet are yet to report their September quarter results. In the June quarter, SpiceJet reported a loss from a year-earlier net profit. 

Jet Airways also reported a loss in the June quarter due to higher fuel costs and foreign exchange losses. It has been struggling for survival. More than 75 days ago its Chairman N Goyal stated, “We have only 60 days left.”

Jet Airways, which had a 14.2% of share of the domestic market in September, is in urgent need to raise cash to stay afloat. The management of Jet Airways has drafted a turnaround plan for the airline, which includes a cost reduction programme of more than ₹2,000 crore over two years, a plan to improve pricing, better inventory management, leveraging the Jet Privilege Pvt. Ltd loyalty programme, capital infusion and fleet simplification.

ALSO READ: Jet Airways

 

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