Friday, October 05, 2018

Expect airfares to go up by as costs up for airlines by 20% : CRISIL

Mumbai: With the onset of third quarter from October which is seasonally a strong quarter for air traffic in India airlines might look at a moderate hike in fares of about 3% says a report by ratings, research and advisory firm CRISIL. The third quarter accounted for 27% of annual revenues and 26% of annual traffic for listed airlines last fiscal.

This will reverse the current declining trend in domestic air fares which has made Indian carriers bleed as the operating costs have skyrocketed due to rising crude prices, imposing of duties and levies on air turbine fuel (ATF) by the government and also a depreciating rupee pushing airlines’ operating cost up by 20% and putting severe stress on their balance sheet.
Airfares for the first quarter of this fiscal declined by 4% -6% despite a challenging operating environment. Operating costs have risen by a fifth over last fiscal primarily because of a 30% rise in crude oil prices and 9% depreciation in the rupee and airlines will use the third quarter as demand remains robust with low sensitivity to fares to hike fares.

But a 3% hike will not offset the increased operating costs and margin pressures will remain. “Operational profitability was under the pump in the first and second quarters due to low fares. But despite any fare rise, operating margins would likely be in the red this fiscal compared with 9-10% estimated for last fiscal,” said Prasad Koparkar, Senior Director, CRISIL Research.
05/10/18 Manisha Singhal/Financial Express