Airline cos brace for hard landing in Q3 on weak rupee

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Airline cos brace for hard landing in Q3 on weak rupee

With the rupee falling to unprecedented levels against the dollar, Indian airline companies are certainly going to face the heat in the December quarter.

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Moneycontrol Bureau

With the rupee falling to unprecedented levels against the dollar, Indian airline companies are certainly going to face the heat in the December quarter.  Of the 100% transactions that airlines do, around 60% is in dollar denomination for salary payments to expat staff, lease rentals and loan repayment.

Carriers also buy aviation turbine fuel (ATF) in rupee terms from Indian oil retaillers but have to pay for it depending on global prices of crude which is currently traded at USD 104 for a barrel and is 32% higher then what it cost in the December quarter of FY11. ATF constitutes nearly 40% of the operating cost to any airline.

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The dollar averaged at Rs 45 in the December quarter of FY11 and was anything between $50-$54 during Sep-Dec period which has almost come to a close. Today it stands at Rs 53.25

Flag carrier Air India's director (finance) S Venkat told moneycontrol.com, "Nearly 60% of our expense is in dollar denomination and due to devaluation in the rupee our operating expenses have escalated in the past few months but right now can't ascertain how much the impact will be."

However, an official from Jet Airways says that an even a Re 1 up on fuel purchases pushes their expenses by Rs 100 crore. "Despite the last three months of the calendar being seasonally strong with almost all our flights taking off with 100% occupancy, the weak rupee has put pressure on margins," he added.

The situation is no different with Kingfisher Airlines and SpiceJet who are likely to see their operating costs shoot up. For instance KFA pays nearly Rs 100 crore towards salaries to expat pilots, which is nearly 10% of their dollar expenditure and have also felt the pinch due to the depreciation of rupee.

Already, SpiceJet has underperformed the market over the past one month till 13 December 2011, falling 22.02% compared with the Sensex's 6.92% decline on concerns related to the weak rupee. Jet has also underperformed the market over the past one month, falling 10.38% compared with the Sensex's 6.92% decline.

Shaheen Mansuri
shaheen.mansuri@network18online.com