Rising crude oil price may impact airline margins

New Delhi: Margins (profit as a proportion of sales) of airlines may be hit in the coming quarters, following a surge in prices of crude oil and Aviation Turbine Fuel (ATF).
ATF prices increased by around 15 per cent in December compared to June. Average jet fuel prices in the current quarter have also risen by over 10 per cent compared to the second quarter. Rising jet fuel prices over the period have increased the operational costs of airlines.
“With fuel prices rising, spends on jet fuel have risen to around 50 per cent of the total operational cost of domestic carriers as compared to 35 per cent of the total operating cost in June. This increase is alarming and if it continues, the airlines will be badly impacted in the next two quarters despite huge demand,” said Mahantesh Sabarad, senior VP of equity research at Fortune Equity Brokers.
Domestic low-cost carriers earn Rs 4 per kilometre per passenger and their expenditure is Rs 2 per kilometre per passenger.
Expenditure on jet fuel constitutes 30 per cent of the total cost of the domestic carriers. In contrast, expenses on jet fuel constitute only 20 per cent of total cost for international carriers.
However, some industry insiders feel airlines in India will be able to absorb the impact of rising fuel costs till crude prices touch $95 a barrel.
22/12/10 Mihir Mishra/Business Standard

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Categories: Indian Aviation- In General Dec 2010