Airlines hit by rising fuel price, lower fares

The rising price of jet fuel and lower fares have taken a toll on financial performance of the three listed air carriers in the second quarter of this financial year.

During the quarter, jet fuel prices have risen by 40 per cent, compared to the same period last year.

And, average domestic fares were 10 per cent less than compared with the same period a year before.

Of the three listed carriers, Jet Airways and SpiceJet ended the last quarter with a profit of Rs 12 crore (Rs 120 million) and Rs 10 crore (Rs 100 million), respectively.

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Of the airlines' total operating cost in India, around half is the cost on fuel.

In the second quarter, the fuel expenses of Jet and Kingfisher rose 50 per cent and 70 per cent, respectively.

These two carriers saw an overall cost rise of 24-30 per cent.

In the case of SpiceJet, the increase in fuel cost in the period was 83 per cent and the overall increase in cost was 60 per cent.

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Of the airlines' total operating cost in India, around half is the cost on fuel. In the second quarter, the fuel expenses of Jet and Kingfisher rose 50 per cent and 70 per cent, respectively.

These two carriers saw an overall cost rise of 24-30 per cent.

In the case of SpiceJet, the increase in fuel cost in the period was 83 per cent and the overall increase in cost was 60 per cent.

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"The losses happened because the airlines could not transfer the rising cost to the consumer.

 "Excessive competition forced them to price at lower levels, even as the passenger volumes grew hugely," said Sharan Lillaney, analyst for Angel Broking.

The average domestic fare of the industry during the second quarter was Rs 3,300, around 10 per cent less than the average fare in the same period last year.

So, despite a 20 per cent growth in passenger numbers, the rise in revenue was checked.

Jet and Kingfisher saw only around seven per cent increase in revenue during the quarter.

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SpiceJet, on the other hand, saw an increase of 26 per cent.

Analysts do not project much change in the coming quarter.

"The airlines may be able to increase their revenues in the coming quarter because of the peak season ahead but the problems will still continue.

"The cost will remain high because of the high crude price, higher interest rate and depreciating rupee," said Shyamal.

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They feel a rise in fares would surely happen in the coming days.

"I believe the airline with the lowest dollar-denominated loans would start making profit in the coming quarters," said Lillaney.

Air fares have started seeing an upward trend and average fares are around 20 per cent higher.

But, the airlines say it is not enough.

"Even with a 20 per cent increase in fares, we have not been able to reach the fares we charged in the last fiscal," said an executive, who did not want to be identified.