Rising ATF burden expected to weigh down airline results

Written by Shaheen Mansuri | Mumbai, May 1 | Updated: May 3 2008, 05:06am hrs
Indian Aviation continues to be buffeted by fuel-cost turbulence. The fourth quarter financial performance of listed private carriers Jet Airways and SpiceJetwhich are yet to declare their results this seasonwill probably follow the same flight path as low-cost carrier Simplifly Deccan, which nose-dived Rs 200 crore into the red for the quarter ended March 31 under the weight of high ATF costs.

Siddharth Agrawal, an aviation analyst with IL&FS, in a recent report, states, Fuel prices have hit an all-time high of Rs 55 a litre and is likely to reach Rs 60 in the ensuing months. Since fuel prices account for over 40% of the operating costs of any airline, the fourth quarter could mean huge losses for the sector. The report further states that a slew of factors like rising employee costs and soaring inflation have also hit the sector hard.

Aviation expert Kiran Yadav adds that airlines are now unable to stabilise their costs due to rising fuel prices. Moreover, yields were low due to the lean January-March season. It will take over a year for the industry to post profits, Yadav said, adding that the sector is already in poor financial health. With the industry having invested in infrastructure and equipment, it would be extremely difficult for it to post positive results this fiscal, he says.

Analysts also point out that fuel burn is higher with larger aircraft, leading to a sharp increase in operating costs. The aviation sector is capital intensive and will reap benefits only after a minimum of two years. The quarter in question will be impacted by factors that include losses on international operations. Unless fuel prices stabilise at $55 a barrel, compared to $120 now, airlines cannot think of making profits, one analyst said, adding that constant expenses like user and infrastructure fees do not contribute to losses the way fluctuating costs like fuel prices do.