Domestic carriers are projected to post the steepest losses in a decade in the current fiscal owing to higher aviation turbine fuel (ATF) costs and falling rupee, rating agency Crisil said in a report on Thursday.
While pitching for a 12 per cent hike in airfares to offset the increased costs, the report forecast debt liability of three listed airlines to go up by 10 per cent by FY19. At present, full-service carriers Jet Airways and budget airlines SpiceJet and IndiGo, which are listed on bourses, account for 71 per cent of the total passenger traffic.
ATF accounts for 35-40 per cent of the total cost of airlines, while aircraft, engine rentals and maintenance costs, which are denominated in dollars, together account for another 30-35 per cent of the costs, as per the Crisil report. “At an estimated Rs 9,300 crore, the industry’s losses at the ebit (earnings before interest and tax) level would surpass the Rs 7,348-crore blow it was dealt in FY14. That was followed by three good years through FY18, when carriers reeled in an aggregate profit of `4,000 crore on average at the Ebit level,” the report said.
Noting that the ATF prices are expected to average 28 per cent higher on-year compared with FY18, the report said such a hike will have a significant impact on the airlines’ balance sheets.
The government has taken some measures to support the industry by lowering the excise duty levied on ATF by 300 basis points to 11 per cent, but this will not materially curb the losses, it said. On the other side, the rupee has depreciated 13 per cent against the dollar since March, which is expected to deal a severe blow to the domestic airlines’ financials,
Crisil said, “Almost two-thirds of an airline’s cost, and therefore, profitability, is susceptible to fluctuations in forex rates and ATF prices,” said Sachin Gupta, senior director, Crisil Ratings. He said to offset the increase in operating cost, the industry will have to hike average fares by 12 per cent, assuming there is no change in the passenger load factor (PLF) or seat factor. —FE