Friday, August 31, 2018

Sinking rupee to push carriers even deeper into air pockets

New Delhi : With three major cost components of airline companies dollar denominated, the slump in the rupee does not augur well for domestic airlines in near term, industry experts and analysts said.

“The weakening of rupee affects airlines in two forms. First, it increases the landed cost of ATF (aviation turbine fuel). Second, a large proportion of the lease payments by airlines are to be made in foreign currency. Therefore, in rupee terms, airlines are reeling under high operating costs coupled with an increase in lease servicing obligations,” Arindam Som, an analyst at India Ratings & Research, said. The third dollar-denominated expenditure is the maintenance cost paid by airlines to engine manufacturers and aircraft makers. Hence, a depreciating rupee leads to higher fuel cost and lease rentals, thereby affecting their profits and valuation, Edelweiss Securities said in a report.

The rupee, which has weakened over 2.5 per cent against the dollar over the last couple of weeks, fell to a new low of 70.81 earlier on Thursday. So far in the current financial year which began April 1, the rupee has lost close to 8 per cent against the dollar.
31/08/18 Free Press Journal

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