Falling Re may force domestic airlines to revise profit targets

Mumbai: As the rupee hit a record low of Rs 51.92 per dollar on Monday, domestic airlines are likely to revise their breakeven targets. As much as 30% of an airline’s operational expenses, excluding the cost of jet fuel, are denominated in dollars.
With the dollar appreciating against the rupee, domestic carriers will have to cough up a lot more and the operating costs will shoot up. Airlines such as Jet Airways, Kingfisher Airlines, SpiceJet and Air India make substantial payments in dollars towards the rentals of leased aircraft, maintenance, spare parts, foreign crew and pilots. For the aviation industry, Citigroup expects the rupee to touch 54 by end-March.
Mark Martin, analyst at research firm KPMG told ET, “This will push up airlines’ operating costs by 10%, forcing carriers to revise their breakeven targets. The rupee depreciation is having an adverse impact on expatriate salaries, airport charges overseas and interest rates on loans.”
Most Indian carriers are aiming to reach their breakeven targets in the next fiscal.
Although fuel prices have come down, the dollar has strengthened. So, there will be no effect as such on their bottomlines,” Mr Martin added.
Airlines pay monthly lease rental of around Rs 40 lakh for a single aircraft. This has crossed Rs 50 lakh due to the depreciating rupee. “Apart from currency impact, parking fees, navigation charges and employee costs have increased manifold over the past two quarters,” said Emkay Global research head Daljeet Kohli.
The combined losses of Indian carriers are estimated to rise from about Rs 4,000 crore in 2007-08 to Rs 10,000 crore in 2008-09, primarily due to the high fuel costs last year.
02/03/09 Mithun Roy/Economic Times

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Categories: Indian Aviation- In General Mar 2009