India's airlines are staring at declining profits or probable losses in the Jan-March quarter as a sharp spike in crude prices, and inability to pass on high costs erode margins in a traditionally weak quarter, analysts said.
"Fuel costs above USD 100 a barrel is a red signal for all airlines. They will find it difficult to post a profit at EBITDA level as right now they won't be able to pass on the entire impact to the consumers as demand will get impacted," said Rashesh Shah, analyst at ICICI Securities.
To offset the cost push, airlines have raised fares by 20-25% in a year, but could not keep pace with fuel costs which have jumped about 40%, said Sharan Lillaney, an equity analyst with Angel Broking.
Fuel, which makes up 35-40% -- higher for low-cost carriers -- of cost, forces airlines to raise fares, thereby dampening demand and hitting expansion plans.
Jet fuel prices in Singapore have risen to near USD 129 as of Thursday, up from a low near USD 83 in August.
Oil prices have risen sharply on fears the crisis in Libya could cut output and that a similar story could play out on other oil producers in North Africa and the Middle East. Brent crude rose 0.3% to surpass USD 116 on Thursday.
"Low-cost carriers may make less profit, but (full-service carriers) Jet Airways and Kingfisher, being highly leveraged, may probably report losses," Lillaney of Angel Broking said.
Jet, India's top carrier by market share, and low-cost SpiceJet reported profits in Oct-Dec, while Kingfisher narrowed its net loss during the quarter.
India's airlines, except Kingfisher and state-run Air India, recovered fairly quickly from the global downturn as economy grew at over 8% boosting air traffic and fuel remained benign.
India's domestic airlines carried about 19% more passengers in 2010 compared to the previous year.
Shares in the country's three listed airlines - Jet Airways, Kingfisher and Spicejet -- have fallen 38-51% this year, compared to a 10% fall in the benchmark index.
10/03/11 Reuters/Moneycontrol.com
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