Airlines sag more with rupee slide

Red ink spreads as around a third of the operating cost of every airline is calculated in dollar terms.

The slide in the value of the rupee against the dollar is making the lives of airline companies, already beset with problems, a bit more difficult. Around a third of the operating cost of every airline is calculated in dollar terms.

Airlines with less international exposure are seeing more impact because of the absence of any dollar revenue. “With the depreciating rupee, our costs have increased by 10 per cent. We have no option but to observe this cost, at a time when the pressure on fares continue because of low fares by two airlines,” said a senior airline executive, who did not want to be identified.
 

DEALING WITH DOLLAR

• Salaries of expat pilots are paid in dollars
• Parking and landing charges at international airports are calculated in dollarst
• Aircraft lease rentals are also paid in dollars
• Aircraft maintenance rentals are paid in dollars
• Fuel costs is calculated in dollars

The rupee has shed a little over 10 per cent in value since the last week of July. “Around 35 per cent of our costs are paid in dollars. Even as the payments for parking and landing at international airports are paid in the local currency, the charges are calculated in dollars, making it the same for us,” said another airline executive.

The lease rentals and maintenance rentals of aircraft, salaries paid to expatriate pilots, parking and landing rates at international airports and jet fuel prices are all dollar-denominated costs.

Aviation turbine fuel constitutes half of the operating cost of an airline; cost of operations is another 30 per cent. The average tax on jet fuel in India is 24 per cent, second only to Bangladesh (at 27 per cent) in the world. Jet fuel prices have increased by 40 per cent in recent times.

SpiceJet and Jet Airways, which made a profit in the first quarter of 2010-11, made losses of Rs 72 crore and Rs 123 crore, respectively, during the same period in the current financial year. Kingfisher Airlines’ losses in the first quarter of this financial year widened to Rs 263.5 crore, compared to Rs 187 crore during the first quarter last year, due to high oil prices.

“Airlines with enough international exposure will have an offset in tickets sold in dollars but airlines with less international exposure will be at the receiving end,” said Sushi Shyamal, partner, Ernst & Young, a financial consultancy firm. A substantial portion of Jet and Kingfisher’s total revenue come from international operations. For the first quarter, Jet Airways’ got Rs 1,508 as revenue from domestic operations and Rs 2,033 crore as revenue from international operations. During the same period, of Kingfisher’s total revenue of Rs 1,881 crore, about Rs 422 crore came from international operations.

Analysts are predicting that the coming quarters will not be better, if the rupee depreciation continues. “A major portion of the airlines cost is in dollar terms. If this continues in the third quarter, it will be adversely impacted despite being the high traffic quarter. It is time the government intervenes to bail out the struggling airlines,” said Amber Dubey, director (aerospace division), KPMG.

“If the rupee continues to remain like this, the dollar-denominated of Jet and Kingfisher will also be impacted,” added Rashesh Shah, chairman of the Edelweiss Group of companies.