The principles of physics mandate that a leaner aircraft will go faster and smoother at heights of more than 30 km above the ground. The economics of the airline business are not too dissimilar, phonetically at least. The best way to deal with hurdles of rising cost is to make the business leaner.
Unfortunately for domestic airlines, the cycle of high costs has returned and, seemingly, earlier than most expected. It has been less than four years since domestic airlines started to enjoy the fruits of a low cost cycle. Last year this time, such was the confidence in the industry that aggressive expansion plans—which required high capital expenditure—were charted out. Large aircraft orders were placed by most large airlines.
In hindsight, those plans were too bullish, too soon. Today, with crude oil prices finding a new normal at $70-75 a barrel and the dollar at Rs 68-69, costs have started to pinch carriers in a manner which led to the closure of Kingfisher Airlines in 2012 and the change in ownership of SpiceJet in late 2014. To put things into perspective, on how a weak rupee and high oil prices are strangling airlines, here are a few comparisons: Since April 1, 2018, aviation turbine fuel prices in Delhi, one of the country’s largest airline hubs, has been higher than Rs 60,000 a kilo-litre; it even touched Rs 70,000 a kl in June. At the same time, the Indian basket of crude oil, the price at which local oil refiners source crude oil, ranged between $69 a barrel and $75 a barrel. The last time aviation turbine fuel was more than Rs 60,000 a kl for more than three months at a stretch was between September 2014 and December 2014. Back then, the Indian basket of crude oil ranged from $96.96 a barrel to $77.58 a barrel.
06/08/18 Debabratha Das/Fortune
To Read the News in full at Source, Click the Headline
Unfortunately for domestic airlines, the cycle of high costs has returned and, seemingly, earlier than most expected. It has been less than four years since domestic airlines started to enjoy the fruits of a low cost cycle. Last year this time, such was the confidence in the industry that aggressive expansion plans—which required high capital expenditure—were charted out. Large aircraft orders were placed by most large airlines.
In hindsight, those plans were too bullish, too soon. Today, with crude oil prices finding a new normal at $70-75 a barrel and the dollar at Rs 68-69, costs have started to pinch carriers in a manner which led to the closure of Kingfisher Airlines in 2012 and the change in ownership of SpiceJet in late 2014. To put things into perspective, on how a weak rupee and high oil prices are strangling airlines, here are a few comparisons: Since April 1, 2018, aviation turbine fuel prices in Delhi, one of the country’s largest airline hubs, has been higher than Rs 60,000 a kilo-litre; it even touched Rs 70,000 a kl in June. At the same time, the Indian basket of crude oil, the price at which local oil refiners source crude oil, ranged between $69 a barrel and $75 a barrel. The last time aviation turbine fuel was more than Rs 60,000 a kl for more than three months at a stretch was between September 2014 and December 2014. Back then, the Indian basket of crude oil ranged from $96.96 a barrel to $77.58 a barrel.
06/08/18 Debabratha Das/Fortune
0 comments:
Post a Comment