Brace yourself for record high airfares this Diwali
With over 70% of the costs of airlines in India being dollar-denominated, industry experts said domestic carriers are feeling the heat like never before as the rupee continues to plummet to new lows against the dollar. Tushar Srivastava reports.india Updated: Aug 26, 2013 03:37 IST
The falling rupee has caused another casualty — your air tickets.
With over 70% of the costs of airlines in India being dollar-denominated, industry experts said domestic carriers are feeling the heat like never before as the rupee continues to plummet to new lows against the dollar.
Indian carriers lost an estimated Rs 10,000 crore in 2011-12 on the back of a Rs 19,000-crore loss over the previous three years, according to industry analysts. Domestic airlines’ debt burden is likely to soon reach $20 billion.
Airfares are likely to touch a lifetime high this Diwali, said Keyur Joshi, co-founder of makemytrip.com. “I am sure fares will go up. Compared to last year, fares will be as much as 15-20% higher. I hope they are, otherwise how will airline make up for all the expenses?
Airlines’ dollar-denominated costs include expat staff salaries, aviation turbine fuel (ATF) or jet fuel, lease rentals, maintenances, aircraft loans, interest repayments etc.
“Rupee depreciation impacts very seriously as over 70% costs are in US dollars,” said Kapil Kaul, chief executive officer, South Asia, aviation consultancy firm Centre for Asia Pacific Aviation (Capa). According to Capa Research estimates, second-quarter losses for airlines are likely to be $400-450 million.
“Costs are at peak and ATF, currently alone is over 60% of the revenue. Fares could reflect cost from third quarter but carriers’ pricing strategy, mostly, defies logic,” said Kaul.
“I continue to believe that till Jet Airways and Air India restructure their domestic model in line with market realities, domestic airline industry will remain fundamentally unviable,” he said.
“High-cost structure marked with low fares (to match low cost carriers) is not sustainable even if you have government funds and support of strategic investors,” Kaul added.
With the dollar appreciating against the rupee, domestic carriers will have to cough up a lot more and operating costs will shoot up.
As the rupee continues with its free fall against the dollar, foreign investors may think twice before investing in India’s aviation sector.