A Boeing Co. 737 aircraft operated by Jet Airways (India) Ltd. approaches to land at Chhatrapati Shivaji International Airport in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

CAPA Says Indian Airlines’ Losses May More Than Triple In 2017-18

The Indian airlines industry is expected to post higher losses at $1.65-1.90 billion in the year ending March 2019, up from the projected $430-460 million, amid the headwinds due higher costs and lower yields.

Airlines will also need to raise over $3 billion in the near term based on June quarter estimates, with full service carriers requiring around $2.6 billion, while the low-cost peers needing $400 million, the India unit of Sydney-based Centre for Asia Pacific Aviation said in its mid-year aviation outlook 2019.

Full service carriers are critically placed and could lose $1.75-2 billion in the current fiscal largely because of their uncompetitive cost base on domestic operations and a lack of profitability on international routes, the outlook said. Government-owned Air India, Jet Airways Ltd. and Vistara are the three full service domestic airlines.

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The financial outlook for airlines has deteriorated dramatically since January, CAPA India said, even as passenger traffic grows unabated. The organisation had expected a consolidated industry loss of $430-460 million. That was subject to oil prices remaining below $70 per barrel and the rupee at around 65-67 against the U.S. dollar. That hasn’t happened. “Our revised forecast is for an industry loss of $1.65-1.90 billion in FY19. These projections assume oil at $75-80 per barrel and the exchange rate at Rs 70-72,” it added.

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CAPA estimates that for the three budget carriers’—IndiGo, GoAir and SpiceJet—the full-year result is likely to have break-even modest profitability. Yet, the possibility of a full-year loss can’t be ruled out.

The domestic airlines industry is facing headwinds, but not a downward cycle as economic fundamentals are strong despite the challenges faced by the aviation sector, CAPA India. “With airlines offering low fares, demand for travel will be stimulated. As a result, the domestic traffic is expected to grow at 18-20 percent this year, and international at 10-12 percent, consistent with the CAPA India forecast in January.”

We do not see this as a downward cycle at this stage.The trigger for that would be sustained oil prices above $80 per barrel and the exchange rate remaining at Rs 70-72.
CAPA’s Mid-Year Aviation Outlook 2019 Report

India had registered double-digit domestic air passenger traffic growth for the 48th straight month in July at 20.82 percent. According to CAPA, the near-terms risks and losses are expected to increase until the industry adjusts to the new normal.

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