Falling rupee delivers a new crude blow to airlines

New Delhi: Depreciation of the rupee against the dollar had dealt a blow to Indian airlines, partially blunting the advantage they had gained due to decline in the price of crude oil. Nearly 35% of the costs of Indian airlines are incurred in foreign currency and rupee depreciation has pushed up this component by 4%. Revenues of airlines are under pressure due to high fares and the hike in costs would only add to their woes.
Airlines have to pay lease rentals, expat salaries and maintenance in foreign currency. These costs are going up due to strengthening of the dollar.
“Lease-rental of aircraft is linked to currency value. On an average, the rupee has depreciated about 10% in the last few months against the US dollar. So lease rental cost has gone up in the same proportion,” Kingfisher Airlines executive vice-president and CFO A Raghunathan said.
Besides lease rentals, other costs like salaries of expatriate staff and maintenance bills have also gone up. “Lease rentals, maintenance and expat salaries will become dearer for the airline in the wake of rupee depreciation. We didn’t anticipate this depreciation. Though one can hedge it, for now we will wait and watch,” said SpiceJet CFO Partha Sarthi Basu.
The currency movement would only add to the crunch faced by airlines due to high fuel costs. “This has happened when airlines are cutting costs. The appreciation in lease rental costs will hit them hard,” says Jayesh Desai of Ernst & Young.
22/09/08 Vishakha Talreja & Nirbhay Kumar/Economic Times

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Categories: Indian Aviation- In General Sep 2008