The domestic airline industry is expected to post losses to the tune of Rs 3,600 crore in the current fiscal on rise in crude oil prices and falling rupee, Icra said in a report.
The losses would come despite around 15 per cent expected average annual growth in passenger traffic over the medium-term due to conducive factors, support from regulatory environment and development of new airports, it added.
Higher crude prices, due to which most airlines saw a decline in their yields during the second half of FY18, resulted in a higher than estimated aggregate loss for the domestic aviation industry to around Rs 2,400-2,500 crore in the previous fiscal, the report said.
According to Icra, the ATF price was 35.4 per cent higher as on March 31, 2017, against the March 31, 2016 level, impacting the financial performance of the airlines during the year due to their inability to pass on the increased cost to the customers.
While the jet fuel prices declined by about eight per cent to Rs 51,640 per kilo litre (kl) as on September 2017, partly on account of the appreciation of the rupee, it witnessed a significant year-on-year increase of 12.6 per cent to Rs 63,162 per kl as on March 2018.
Overall, the average ATF prices during FY18 were higher by 10.4 per cent. This is evident from the increase in fuel cost per available seat per kilometre (ASKM) for the three listed airlines during FY18, Icra noted.
“While growth prospects remain favourable, sharp rise in crude oil price and rupee depreciation are likely to exert pressure on operating profitability of airlines in the near-term, resulting in higher net loss of ~Rs 36 billion in FY2019,” said Kinjal Shah, vice-president and co-head for corporate sector ratings, Icra.
While the strong passenger traffic growth will allow airlines to improve yields to offset cost pressures to some extent, the increase may not be adequate, the agency said.
“Therefore the RASK (revenue per available seat kilometre)CASK (cost per available seat kilometre) spread is expected to get squeezed,” she said.
Furthermore, the aggregate industry debt level is expected to increase to about Rs 66,500 crore by March 2019 as some airlines have large capacity expansion plans, which may be either owned (through debt funding) or on operating lease, Shah added.
The ASKM growth in this fiscal is estimated to be around 15-17 per cent, Icra said adding the key driver for the industry capacity growth continues to be the sizeable order backlog of the industry.