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.
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.
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.