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Airlines face turbulence, losses could top estimates, says Capa

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Despite a rise in air traffic in the last two months, airlines are expected to report bigger-than-estimated losses for the quarter ended September because of higher operational costs and promotional fares.

The industry is likely to post losses of over $500 million (Rs 3,000 crore), consulting firm Centre for Asia Pacific Aviation (Capa) said in a report released Tuesday, raising its estimate from the $400-450 million it had given out earlier.

Capa expects every airline in India to have been in the red during the quarter, excluding one-time adjustments such as sale-and-leaseback and other non-operating income and benefits.

Among private carriers, Jet Airways is estimated to have posted the highest loss at close to $150 million, followed by SpiceJet at $70-80 million. Indeed, the consulting firm expects Jet Airways and SpiceJet to report a loss for the full fiscal.

Discounted airfares offered by most airlines in the last couple of months are seen impacting the margins of airlines, while higher import costs on account of depreciation of the rupee will further hit profitability.

“Indian airlines have unfortunately repeatedly demonstrated their ability to undo months of hard work with just a few weeks of irrational pricing, as a result of which profitability remains elusive,” Capa noted.

August and September saw a robust air-traffic growth of 20% and 13%, respectively, on-year.

Most airlines cut airfares during these months in order to boost demand in the lean period, resulting in significant forward bookings, though the discounted fares were suspended in mid-September as input costs rose.

Even IndiGo, the biggest carrier by the number of passengers carried, is expected to report a large loss for the quarter.

To be sure, IndiGo had posted a record profit of Rs 787 crore ($145 million) for 2012-13 while the other carriers remained in red.

“Nevertheless the carrier is on track to report a full year profit, although the result may be below our earlier projection of a profit of $100-110 million,” said the Capa report.

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