Affected by higher oil prices, airlines seek credit from PSU oil firms and airports operator.
Hyderabad: Years after higher crude oil prices broke Kingfisher Airlines and led to its eventual shutdown, the Indian airlines are feeling the pain of higher fuel costs yet again.
According to Bloomberg, the Federation of Indian Airlines (FIA), an industry body that represents four private airlines in India, has asked the government to help the airlines in obtaining “unsecured credit from oil companies and airports” to bail them out of the current financial stress.
Fuel and user charges typically make up nearly 40 per cent of an airline’s operating expenditure. In the event of higher fuel prices, the component may increase further causing financial strain to the airline.
However, the airline are unable to pass on the higher costs to the passengers in wake of higher competition between industry players to get a pie of the world’s fastest growing air travel market.
Airlines are “facing challenging times and substantial losses in the domestic environment... Competit-ion and aggressive pricing are stopping fares from rising to reflect higher input costs,” FIA said in a letter addressed to aviation secretary Rajiv Nayan Choubey.
The FIA represents the interests of four private airlines — Jet Airways, Inter-Globe Aviation Ltd.’s IndiGo, SpiceJet. and Go Air. The four airlines together occupy nearly 80 per cent of the Indian domestic aviation market.
Though airlines get credit from oil firm and airport operators an ad hoc basis, the industry body has reportedly asked the aviation ministry to help the airlines in getting a penalty-free, one-month unsecured credit line from oil companies, and state-run Airports Authority of India and private airports.
Apart from the crude oil prices, a weaker rupee has caused strain on the financials of the airlines as they to shell out more rupees to pay interest for overseas borrowings, maintenance and leasing expenditure.
“Losses at Indian carriers will balloon to as much as $1.9 billion in the year ending March 2019, and they need to raise more than $3 billion in working capital in the near term,” Bloomberg said quoting Sydney-based consultancy CAPA Centre for Aviation.
It added that most of the airlines have cash balan-ces that can cover expenses for only two to three weeks.
“There is a considerable cash-flow mismatch between costs and revenues earned. Base air fares can be as low as 1 rupee in India, while states charge taxes as high as 30 per cent on jet fuel. Airlines are unable to pass on those costs to customers without hurting passenger growth,” the US news agency said quoting the FIA’s letter.
In its a month-old report, Crisil said that the Indian airlines “are facing their worst losses in a decade.”
Higher crude oil prices have always been a bane for the Indian airlines. The previous bout in crude oil prices resulted in the losses of Kingfisher Airlines, which eventually led to its shutdown and forced its founder Vijay Mallya to turn fugitive.
Underscoring the importance of oil price, Mr Mallya in 2016 said, “The only regret is that Kingfisher Airlines is not flying today when the oil price is so low.”