Monday, July 11, 2022

Higher ATF prices, weaker Rupee to drag aviation sector profitability despite strong fares

With aviation turbine fuel (ATF) prices surging by nearly 35% and the Rupee hitting all-time lows, the profitability of the aviation sector might suffer, analysts said on Monday.

An increase in jet fuel price raises the operating cost for airlines. ATF makes up to 40 per cent of an airline's operating cost. As per reports, Civil Aviation Minister Jyotiraditya Scindia recently held a detailed discussion with the advisory group of airlines on ATF in India and abroad, along with steps to mitigate the burgeoning pressure of rising prices.

According to a report by ICICI Securities, a notable depreciation in the Rupee can be attributed to the heavy loss in foreign exchange (Rs 13.7 billion) for private airline IndiGo in the first quarter of the ongoing fiscal despite the high fares. Profits remain super-sensitive to yields, analysts have said.

The Indian rupee weakened to a fresh record low in the face of broad strength in the US$.

“We expect RASK (Revenue per Available Seat-Kilometer) of Rs 4.5 in Q1FY23E which, against fuel CASK of Rs 2.2 and non-fuel CASK of Rs 2.6, leads to a loss of Rs 7.3 billion for IndiGo in Q1FY23E,” stated the report.

11/07/22 Diksha Tripathy/Economic Times

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