Domestic airlines may post higher losses at $1.65-1.90 bn this fiscal: CAPA

The airlines may lose money in the current fiscal largely because of their uncompetitive cost base on domestic operations and a lack of profitability on international routes, the report said

The domestic airlines industry is expected to post higher losses at $1.65-1.90 billion this fiscal year, up from projected $430-460 million, amid the headwinds due to higher costs and lower yields, a report said.

Besides, airlines need to raise over $3 billion in near-term based on June quarter estimates, with full service carriers requiring around $2.6 billion, while the low-cost peers needing $400 million, the India unit of Sydney-based Centre for Asia Pacific Aviation (CAPA) Monday said in its Mid-Year Aviation Outlook 2019.

Full service carriers are critically placed and could lose $1.75-2 billion in the current fiscal largely because of their uncompetitive cost base on domestic operations and a lack of profitability on international routes, it said.

Government-owned Air India, Jet Airways and Vfull-servicehe three full service domestic airlines.

Stating that traffic growth continues unabated but the financial outlook has deteriorated dramatically since January, the report said, "At that time (since January) CAPA India forecast a consolidated industry loss of $430-460 million, subject to oil remaining below USD 70/barrel and the US dollar exchange rate at Rs 65-67."

"Our revised forecast is for an industry loss of $1.65-1.90 billion in FY2019. These projections assume oil at $75-80/barrel and the exchange rate at Rs 70-72," it added.

CAPA estimates that though three budget carriers' - IndiGo, GoAir and SpiceJet - full-year result is likely to range between break-even modest profitability, the possibility of a full-year loss can't be ruled out.

Observing that the domestic airlines industry is facing headwinds, but not a downward cycle as economic fundamentals are strong, CAPA India said despite the challenges faced by the aviation sector, the wider macro-economic conditions remain strong.

"With airlines offering low fares, demand for travel will be stimulated. As a result, the domestic traffic is expected to grow at 18-20 per cent this year, and international at 10-12 per cent, consistent with the CAPA India forecast in January.

"We do not see this as a downward cycle at this stage. The trigger for that would be sustained oil prices above $80/barrel and the exchange rate remaining at Rs 70-72," it said.

India had registered double-digit domestic air passenger traffic growth for the 48th straight month in July at 20.82 per cent.

According to CAPA, the near-terms risks and losses are expected to increase until the industry adjusts to the new normal.