DNA Money Edit: Rising fuel prices to hit airlines

The Indian airlines which are facing strong headwinds from the rising fuel prices may see its financial getting affected in FY19 in comparison to the last couple of years. The weakening of the rupee and rising fares out of aggressive capacity inductions is surely to add to their woes.

The firming up of Jet fuel costs has already started hurting the yields of the airlines and the Q4 results of Indigo and Spicejet are an indication. The fuel costs constitute more than 40% of the overall operating costs of the airlines.

According to an outlook report released in January by aviation consultancy firm CAPA for FY2019, all low-cost carriers (LCCs) except for AirAsia are expected to make a profit. The LCC may report $450-500 million profit. However, full-service carriers (FSC) are projected to report losses of $825-850 million – with both Air India and Vistara loss-making. Jet Airways expected to either break-even or report a modest profit, subject to the Q4 performance.

The fuel price hike has already started making the airline executives uncomfortable. Sanjiv Kapoor, chief strategy and commercial officer, Vistara in a tweet on May 11 said the current price is just 15% lower than highest ever price (Oct 2013), and is almost double the lowest price in the period (Feb 2016). The management of market leader Indigo during a recent conference call with analysts said that it will not shy away from taking the competition on low fares, even if it means low yields in short-term.