Sunday, December 29, 2019

Why is the Indian aviation industry in red?

Mumbai: The Indian aviation industry has been impacted by many issues ranging from high fuel costs to economic slowdown, lower airfares according to experts.

According to Ministry of Civil Aviation’s data, reviewed by BusinessLine, Indian airlines has recorded operating losses of Rs 6,845.78 crore during the first eight months of this financial year, its highest since FY15.

Even though there are only four months left for the fiscal to end, the total operating expenses incurred by the Indian airlines is over Rs 88,010 crore in comparison to Rs 91,232 crore the previous fiscal.

According to Hetal Gandhi–Director, CRISIL Research, about 35-40 per cent of the operating costs for the Indian aviation industry are driven by fuel prices. Additionally, 20-30 per cent of the operating costs are dollar-denominated. This indicates significant exposure to volatility in raw material prices. “The increase in the price of the dollar was an added cost to the airlines”,she explained.

Central Excise Duty on Aviation Turbine Fuel (ATF) has been reduced to 11 per cent on October 11, 2018, from 14 per cent.

Value Added Tax/Sales Tax levied on ATF by various State Governments has also been varied by them from time to time. Basic Customs Duty of 5 per cent is levied on import of ATF with effect from September 27, 2018.
According to the MOCA data, during the April-November period, Central government collected Rs 2,540 crore in excise duties and Rs 229 crore as customs duties. This was a 1732.8 per cent increase from FY15, when the excise duty collected for the whole year was Rs 1,063 crore and customs duty was Rs 58 crore.
Abhilash Varkey Abraham, Research Analyst, Aerospace & Defense, Frost & Sullivan said that factors like overexpansion and crippling debts increase overall operating costs.
Ashish Nainan, aviation analyst with CARE ratings is concerned that after Jet Airways’ demise, all airlines added capacity. The overhead cost of additional fleet and new aircrafts meant, the losses only swelled for the incumbents. If that was not enough, the deep-discounted airfares were an added burden for the airlines.

According to a recent CAPA report, this a short-term dip. The financial performance expected to normalise from 3QFY2021. “Unless the issues around fleets/ aircrafts is not solved, the losses are expected to continue for the sector for atleast the next two quarters.” Nainan added.
28/12/19 Forum Gandhi/Business Line
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