Looks like good times have taken off for airlines.
After the easing of jet fuel prices, a stronger rupee against the dollar is expected to further bring down their operational cost.
Close to 30% of an airline’s operating costs are denominated in US dollar. The value of rupee against the dollar has climbed by around 6% in the last three months to Rs46 from Rs49.
M Thiagarajan, managing director of Paramount Airways, said a firmer Indian currency translates into lower costs for airlines as they have to shell out less for lease rentals, global distribution system (GDS) for ticket reservation, aircraft spare parts, salaries of expat pilots and other costs borne in dollars.
He said appreciating rupee also indirectly impacted the aviation turbine fuel (ATF) prices as oil marketing companies (OMCs), which paid for their crude oil imports in dollar, gain from a weaker US currency.
“The direct and indirect cost benefit coming from the appreciating rupee will bring down our costs substantially,” he said.
A GoAir senior executive, who did not want to be named, expects ATF prices to fall 6-7% due to slipping crude oil and a rising rupee.
“Since the price of crude oil is in dollars, there will be a fall in its price, thanks to rupee appreciation. The rate of ATF can effectively come down by 6-7 %,” he said.
An analyst with a local broking house said the fall in US dollar will see air carrier’s liabilities on leased aircraft taken on foreign exchange (forex) – US dollar – loans dip.
“Liabilities (on leased planes) of airlines come down with the fall in the dollar rates, making it a little easier for them to pay for the leased aircraft,” he said.
An executive from another budget airline estimated that 6% increase in rupee value will cut their operational cost by around 2%.
“Since around 30% of our costs are in dollars, the impact of 6% rupee appreciation on our overall operational cost will be around 2%,” he said.
He said airlines will also benefit from the 3-3.5% cut in ATF prices in the last three fortnightly revisions by OMCs.
“That (slash in ATF prices) will bring down our operational costs by another 1%. So, strong rupee along with lower ATF prices will snip our total costs by around 3%,” he said.
But dip in operational cost is not likely to result in lower fares.
Paramount’s Thiagarajan said most airlines will use this opportunity to trim their losses.
“Most carriers will try to recover losses and may not pass on the benefit of lower costs to passengers,” he said.
According to airline consultancy firm Centre for Asia Pacific Aviation (CAPA), the airline industry lost around Rs9,000 crore ($2 billion) in 2008-09.
Airlines have been struggling with low yields, net revenue per seat and excess capacity in the market that had resulted in intense fare war. However, with load factors picking up with rebound in domestic air travel and the festive season kicking in, yields are expected to get better.
“Things are looking up for us (airlines) both on cost and yield fronts. This will reduce industry losses and will take some airlines into profitable zone,” said the budget airline official.
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