Tuesday, September 25, 2018

Turbulent times for the domestic aviation industry: ICRA

The domestic airline industry, despite strong traction on growth, is facing challenging times. The industry is facing a double whammy with increasing aviation turbine fuel (ATF) prices and depreciation of INR against the dollar. Coupled with pressure on yields, this has aggravated the turbulence in the industry.
ATF represents the single largest cost element for airlines, accounting for ~30-40% of their total operating expenses. As such, the profitability of the airlines is significantly impacted by the ATF prices, which have been subject to high volatility. Post ~10.4% increase in average ATF prices in FY18, they have further witnessed a YoY increase of 33.6% during April-September 2018.
This is the combined impact of an increase in the US Gulf Coast jet fuel price and 6.4% depreciation of the INR against the dollar during this period. Sequentially, the ATF prices have increased by 12.3% in September 2018 over March 2018, and the INR has depreciated by 10.4%.
25/09/18 IIFL