Vistara explains how rupee depreciation is hitting airlines in India

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Published: June 26, 2020 10:26 PM

In January, one USD was available for around Rs 71. On June 25, the exchange rate said one USD was of Rs 75.65.

Scheduled international passenger flights continue to remain suspended in India.

Indian airlines are struggling hard as most of their costs like the ones related to aircraft leasing, plane’s maintenance and fuel have to be paid in USDs, a Vistara official said on Friday, at a time when rupee has depreciated by approximately 6 per cent since January.

“The reason why the airlines are struggling this hard is because a lot of our costs are all in USD. And with continually depreciating rupee, and as most of us (airlines) predominantly operate in the domestic market, there is obviously going to be a mismatch,” Vistara’s Chief Commercial Officer Vinod Kannan said at a webinar organised by aviation consultancy firm CAPA.

While signing contracts with aircraft leasing firms or aircraft maintenance firms, airlines generally have to agree to make payments in USDs only. In January, one USD was available for around Rs 71. On June 25, the exchange rate said one USD was of Rs 75.65.

Kannan said, “Whether it comes to fuel, aircraft leasing, aviation maintenance organisationsor aircraft overhauls, it is all in USD. You can push down your costs to the lowest level possible, all you need is a Rs 10 increase (in price of a USD), or a depreciation of the rupee by 1-3 per cent.”

“So, I think that is an important point. How do we address that? I am not sure…But I think it is very pertinent because you can be the slimmest, meanest organisation in the Indian context, but you still might not cut it purely because of factors that are outside your hands,” he stated.

Calling the coronavirus pandemic a “black swan” event, Kannan noted that the airlines have a fundamental knack of ordering aircraft when the times are good, and getting the delivery when the times are bad. “So that is an important reason why the airlines not just in India but around the world have to think twice about (aircraft) utilisation and see how we can improve aircraft utilisation than order more aircraft,” he stated.

Scheduled international passenger flights continue to remain suspended in India. After a gap of two months, the Indian government resumed domestic flight services on May 25 albeit in a curtailed manner and with limits placed on airfares.

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