New Delhi : With three major cost components of airline companies dollar denominated, the slump in the rupee does not augur well for domestic airlines in near term, industry experts and analysts said.
“The weakening of rupee affects airlines in two forms. First, it increases the landed cost of ATF (aviation turbine fuel). Second, a large proportion of the lease payments by airlines are to be made in foreign currency. Therefore, in rupee terms, airlines are reeling under high operating costs coupled with an increase in lease servicing obligations,” Arindam Som, an analyst at India Ratings & Research, said. The third dollar-denominated expenditure is the maintenance cost paid by airlines to engine manufacturers and aircraft makers. Hence, a depreciating rupee leads to higher fuel cost and lease rentals, thereby affecting their profits and valuation, Edelweiss Securities said in a report.
The rupee, which has weakened over 2.5 per cent against the dollar over the last couple of weeks, fell to a new low of 70.81 earlier on Thursday. So far in the current financial year which began April 1, the rupee has lost close to 8 per cent against the dollar.
The situation seems more alarming as airlines have not been able to raise fares despite growth in demand. Extreme competition and price-sensitive nature of the demand have led to a low yield environment for airlines for the past two consecutive quarters. And on top of it is the traditionally weak quarter of Jul-Sep as demand is generally muted due to the end of tourist season and monsoons.
The airlines have already faced the impact of the weak currency in the June quarter. For Jet Airways (India), the marked-to-market losses due to depreciation in the rupee were at nearly Rs 350 crore. InterGlobe Aviation-led IndiGo, the market leader with the best cost structure, suffered a Rs 250 crore loss on account of weakness in the foreign exchange.
‘Link airfares to inflation, do away with dynamic pricing’
New Delhi: Some of the members of a Parliamentary panel have suggested that the government should look at linking airfares with inflation instead of dynamic pricing system and also cap the ticket prices, sources said. The suggestions were made by some members of the Parliamentary Standing Committee on Transport, Tourism and Culture during a meeting with senior officials of the Civil Aviation Ministry on Wednesday. There have been persisting concerns about steep fluctuations in air ticket prices during festival seasons and calamities. Against this backdrop, some members of the panel recommended that airfares should be linked with inflation, rather than the prices being determined on the basis of demand, a source, who was present at the meeting on Wednesday, said.