Explaining the Bleeding of Airlines amidst Double-Digit Passenger Growth

by | Dec 19, 2018 | blog | 0 comments

Crude oil prices are reaching new heights. Meanwhile, rupee is depreciating around 13 percent against the US dollar since 2018 began. India, however, is showing no signs of abating.

It has been a rough couple of months for Indian carriers. For 50 consecutive months, there has been a double-digit passenger traffic growth. In spite of this, Indian carriers have yet to be rid of the burden of rising aviation turbine fuel (ATF) prices to flyers.

Rising oil prices and the weaker rupee are not the only factors affecting the domestic carriers. The intense competition has resulted in a price war within the sector. While travellers rejoice over giveaway fares offered by low-cost, full-service carriers, the widening losses brought by escalating costs have been affecting the ability of domestic airlines to manage the problem.

A 38 percent rise in ATF prices have caused the Rs 50,200 per kilolitre (KL) in September last 2017 to jump to Rs 69,090 per KL in August this 2018. The margins of several airlines have been dented because of this, pressuring on yields – the average fair paid per mile, per passenger.

For instance, the yields at IndiGo have seen a 10 percent decline to Rs 3.21 in the second quarter of FY19. InterGlobe Aviation, IndiGo’s parent, suffered a loss of Rs 652.1 crore in the quarter ending on September.

India’s largest airline had more than 40 percent market share. Last year, it gained a profit of Rs 551.6 crore.

Rahul Bhatia, IndiGo’s co-founder and interim CEO, shared that the costs of pressure from the rising fuel prices, the depreciation of rupee, and the competitive fare environment significantly impacted profitability. The airline’s total income went up by more than 18 percent to Rs 6,514.2 crore in the second quarter of September this year.

Almost every airline experiences the stress of India’s price-sensitive market. The demand is high but the industry lacks the pricing power. This is a problem that stresses out every airline’s sustainability.

Crude oil prices are reaching new heights. Meanwhile, rupee is depreciating around 13 percent against the US dollar since 2018 began. India, however, is showing no signs of abating.

It has been a rough couple of months for Indian carriers. For 50 consecutive months, there has been a double-digit passenger traffic growth. In spite of this, Indian carriers have yet to be rid of the burden of rising aviation turbine fuel (ATF) prices to flyers.

Rising oil prices and the weaker rupee are not the only factors affecting the domestic carriers. The intense competition has resulted in a price war within the sector. While travellers rejoice over giveaway fares offered by low-cost, full-service carriers, the widening losses brought by escalating costs have been affecting the ability of domestic airlines to manage the problem.

A 38 percent rise in ATF prices have caused the Rs 50,200 per kilolitre (KL) in September last 2017 to jump to Rs 69,090 per KL in August this 2018. The margins of several airlines have been dented because of this, pressuring on yields – the average fair paid per mile, per passenger.

For instance, the yields at IndiGo have seen a 10 percent decline to Rs 3.21 in the second quarter of FY19. InterGlobe Aviation, IndiGo’s parent, suffered a loss of Rs 652.1 crore in the quarter ending on September.

India’s largest airline had more than 40 percent market share. Last year, it gained a profit of Rs 551.6 crore.

Rahul Bhatia, IndiGo’s co-founder and interim CEO, shared that the costs of pressure from the rising fuel prices, the depreciation of rupee, and the competitive fare environment significantly impacted profitability. The airline’s total income went up by more than 18 percent to Rs 6,514.2 crore in the second quarter of September this year.

Almost every airline experiences the stress of India’s price-sensitive market. The demand is high but the industry lacks the pricing power. This is a problem that stresses out every airline’s sustainability.