Airlines have been grounded for over a month now, and as lockdown is
here to stay, the sector has only bad news coming its way.
The inkling that flying might remain affected for many months as Indians practice social distancing means — less earnings per flight. This gap might as well be filled by lower crude oil prices. A Credit Suisse report says that crude oil prices are ‘so low’ that airlines can break-even even at half the revenue even if they fly with empty middle seats.
Jet fuel constitutes a major chunk of airlines’ expenses. As of now, Brent crude is at $19.63 per barrel and the fact that US crude futures went into the negative territory offers hope to airlines.
“Crude has lowered the variable cost of flying, implying that airlines can start to make a contribution towards covering its fixed cost at a lower load factor of 50% also. We assume prices of 10% lower than FY20E levels. Airline can thus aim to fly with even a 50% load factor and start to make a contribution towards covering its fixed costs. This also enables airlines to fly with middle seats empty. Middle seats being empty may also help to push up prices, breaking the downward spiral of prices,” cited the report.
Refunds, cash and bookings This could come as some relief especially after industry body CAPA predicted that most airlines globally will go bankrupt by May. Even the largest airlines in the world are seeking government aid, and are worried that they will ever see the light of day again.
28/04/20 Navdeep Yadav/Business Insider
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The inkling that flying might remain affected for many months as Indians practice social distancing means — less earnings per flight. This gap might as well be filled by lower crude oil prices. A Credit Suisse report says that crude oil prices are ‘so low’ that airlines can break-even even at half the revenue even if they fly with empty middle seats.
Jet fuel constitutes a major chunk of airlines’ expenses. As of now, Brent crude is at $19.63 per barrel and the fact that US crude futures went into the negative territory offers hope to airlines.
“Crude has lowered the variable cost of flying, implying that airlines can start to make a contribution towards covering its fixed cost at a lower load factor of 50% also. We assume prices of 10% lower than FY20E levels. Airline can thus aim to fly with even a 50% load factor and start to make a contribution towards covering its fixed costs. This also enables airlines to fly with middle seats empty. Middle seats being empty may also help to push up prices, breaking the downward spiral of prices,” cited the report.
Refunds, cash and bookings This could come as some relief especially after industry body CAPA predicted that most airlines globally will go bankrupt by May. Even the largest airlines in the world are seeking government aid, and are worried that they will ever see the light of day again.
28/04/20 Navdeep Yadav/Business Insider
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