Updated: August 15, 2018 2:50:08 am
The civil aviation ministry has taken cognisance of the stress in the aviation sector due to rising fuel prices and the depreciating rupee. Minister Suresh Prabhu Tuesday said that the ministry was working on addressing these issues. While flag-carrier Air India delayed payment of salaries to its employees for the fifth consecutive month before disbursing them on Tuesday, private airlines have seen a significant drop in yields.
“All these issues are also addressed by the ministry through various means and therefore this issue has also been taken into account. As you know, due to increase in fuel costs, airline sector not just in India but globally is facing serious challenges. All the airlines are suffering because their cost has suddenly gone up after a long lull in oil prices,” Prabhu said, while briefing journalists on the civil aviation ministry’s proposed plan for greenfield airport agreements.
Tuesday, budget airline SpiceJet reported its earnings for the June-quarter recording a net loss of Rs 38 crore, after 13 consecutive quarters of profitability. For the same period last year, SpiceJet recorded a net profit of Rs 175.2 crore. The airline attributed its loss to a one-time expense of Rs 63.5 crore of an arbitration award that cited interest payable of Rs 92.5 crore and interest receivable of Rs 29 crore for SpiceJet. “While the industry has been plagued with adverse macroeconomic conditions in the form of rising crude oil prices and weakening rupee, SpiceJet was able to demonstrate a superior revenue performance to overcome this drag and has been able to generate positive cash flow,” SpiceJet pointed out in its investor presentation. However, the airline saw its EBITDA (earnings before interest, taxes, depreciation and amortisation) margin fall to 5 per cent for quarter-ended June, compared with 13 per cent last year.
Last month, the country’s largest airline IndiGo reported a net profit of Rs 27.8 crore for the June quarter, compared with a profit of Rs 811.1 crore during the same period last year. Its profit margin declined to 0.4 per cent during the quarter from 14.1 per cent last year. Fuel costs comprise more than half the expenses for Indian airlines. IndiGo asserted that its profitability was “majorly impacted” by the adverse impact of foreign exchange, high fuel prices and the competitive fare environment.
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India’s oldest private carrier Jet Airways, too, is facing financial troubles with the company evaluating options to raise funds to meet its liquidity requirements on priority. Last month, the airline proposed pay cuts for its pilots before eventually rolling back the proposal. As of March 31, 2018, Jet Airways had an adjusted net-debt of Rs 8,082 crore. The company, which was expected to declare its quarterly results for the April-June period on August 9, deferred the announcement. It said that the management sought more time from the Board’s audit committee to finalise the accounts and the panel conveyed the same to the Board of Directors, following which the results were postponed.
“Since oil is an important variable cost for airlines, and its prices have shot up, they have not been able to absorb in the short term due to their business model. This is a very important issue and all the airlines in India are suffering due to increase in oil prices,” Prabhu said. The civil aviation ministry has demanded for inclusion of jet fuel under the GST regime, in what could bring a relief to airlines. Additionally, it is also in discussions with the finance ministry to allow airlines to borrow from overseas to meet their working capital requirements.
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