Weak rupee to push bleeding airlines towards rougher patch

Moneycontrol Bureau

For airline operators, the rupee's slide comes as another blow at a time when the industry is grappling with high operating cost which has already compressed margins.

The rupee has declined over 11 percent since May and this will adversely impact airlines which incur 60 percent of their expense in dollar denomination.

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Expat staff salary payments, aircraft lease rentals and purchase of aviation turbine fuel (ATF) will now get dearer as rupee is consistently weakening against the greenback. Interest on foreign currency loans will also get costlier.

Full service carriers like Jet Airways and Air India are ascertaining how much impact a weak currency will have on their financials. According to rough estimates, a Re 1 movement on fuel (ATF) purchases  pushes their expenses by Rs 100 crore. Money market experts said the chances of rupee bouncing back soon are bleak and it could be a nightmare for capital intensive sectors like airlines.

However, an analyst says that Jet Air has a natural hedge to counter the currency fluctuation. International operations contribute around 70 percent to its overall revenues. Hence, the firm may not have a huge impact as anticipated. If the local currency continues with its free fall, the situation will become critical for the airline, he added.

However, for smaller carriers like Indigo and SpiceJet, the impact may be even deeper as their international revenues are limited and other dollar-denominated expenses remain higher and hence there is no way operators can minimise impact.

Already, SpiceJet has underperformed the market over the past one month till 13 December 2011, falling around 30 percent compared with the Sensex's 7.40 percent decline on concerns related to the weak rupee. Jet Airways has also underperformed the market over the past one month, falling around 18 percent.