INSUBCONTINENT EXCLUSIVE:
Mumbai: Indian airlines may post a decade-highest combined loss before interest and tax of Rs 9,300 crore in the ongoing financial year,
according to estimates from ratings agency Crisil
“Higher fuel costs and currency losses are expected to push airlines deep into the red this fiscal, reversing a three-year joyride.
At an
estimated Rs 9,300 crore, the industry’s losses at EBIT (or earnings before interest and tax) level would surpass the Rs 7,348 crore blow
it was dealt in fiscal 2014
That was followed by three good years through fiscal 2018, when carriers reeled in aggregate profit of Rs 4,000 crore on average at the EBIT
level,” the agency said in a statement.
The agency attributed it to a “double blow” of rising fuel prices and a weaker rupee
With ATF (aviation turbine fuel) prices expected to average 28% higher on-year compared with fiscal 2018, “the impact will be
significant”, it said.
The government has taken some measures to support the industry by lowering the excise duty levied on ATF by 300
basis points to 11%, but this will not materially curb the losses, it added.
Aircraft, engine rentals and maintenance costs, which are
denominated in US dollars, together account for another 30-35% of the costs
The blow on this count is also expected to be severe given that the rupee has depreciated 13% against the dollar since March 2018, it
said.
Crisil said air fares needs to be raised at least 12% to face the double-impact but added that the aggressive capacity expansion
coupled with cut throat price wars to cater to the price-sensitive nature of the Indian consumer will prove to be a headwind to fare
increases.
“This was evident in the first quarter of fiscal 2019 when, despite a 12% rise in ATF prices, only one of the three listed
players was able to increase yields, and that, too, by just 4%
Yields are unlikely to have increased in the second quarter, which is traditionally weak,” the statement said.
Furthermore, the
depreciation in the rupee will translate into higher debt liability.
“Airlines have sizeable foreign currency debt, while their revenues
are largely earned in rupees,” said Nitesh Jain, Director, CRISIL Ratings
“With 73% of their debt denominated in foreign currency, the debt liability of the three listed airlines (aggregate market share of 71%)
will go up by 10% this fiscal,” he added.
The credit profiles of airlines, already downgraded by multiple agencies, will remain under
pressure over near-to-medium term on account of significant increase in operating cost and limited ability to pass on cost increases to
customers because of intense competition
Further, full service carriers will feel a much sharper impact than low-cost carriers, the statement said.
