Cooling crude no balm for airlines

Written by Shaheen Mansuri | Mumbai, Aug 19 | Updated: Aug 21 2008, 04:39am hrs
The recent cooling down of fuel prices does not offer much respite to airline companies. Airlines say its not sure whether oil price will keep falling or stabilise at current levels. Second, they say crude oil price can be under pressure due to any unforeseen calamity in future.

Its very difficult to say where the oil price will head, despite there being a downtrend in the pricing in the past few weeks," says a CFO of a low cost airline.

The official added, the Indian crude oil basket touched a four-month low at $107.93 a barrel on Monday, down $3.74 from the previous week.

He also said low cost carriers are offering zero-fare currently to grab higher load factors during the summer vacation. The fall in the crude price will not affect the sector in a big way due to the high tax structure in India which is already eating away into the profitability of the airlines.

Even financial planner, Gaurang Shah of Geojit Financial Services adds, The sector will remain in the red in the second half of the fiscal primarily because the airlines not only have to contend with high fuel prices but also with the demand for air travel cooling down compared to last year. He also added though internationally there are conflicting reports of whether the fuel cost will further soften or not, the sector has to grapple with the high airport infrastructure usage fee too.

The shares of the listed airline companies like Jet Airways, SpiceJet and Deccan Aviation Ltd have hit an all-time low in August, said Shah.

An analyst from a Mumbai-based brokerage firm adds, The outlook for the aviation sector is bleak, since airlines are not in a position to recoup the high operating costs, despite the fuel prices being low currently.

He further adds though there could be a minimal reduction in the cash flows for the month, the fear of the crude oil price heading northwards is hounding them.