High oil price, falling rupee slated to dent profit margins of airlines

A rapidly falling rupee and escalating oil prices are likely to eat into the profit margins of Indian carriers, cancelling the impact of 18 percent year-on-year growth in passenger volume, a recent media report by Economic Times suggests.

As per the report, “SpiceJet, InterGlobe Aviation and Jet Airways could, cumulatively, report a 70-75 percent on-year drop in net profit even though revenue may climb about 15-20 percent, roughly in kilter with the pace of passenger growth for the industry.”

A major spurt in oil prices – the cost of crude Brent increased by 13.5 percent by the end of the June fiscal – has made operations dearer. The cost of a dollar to the rupee, in the period, has spiked by over 5 percent, and the Indian rupee very recently touched a historic low. Oil prices and the cost of the dollar, together as variables, contributed to 40 percent of the total operating cost, as per the report.  

Interestingly, these developments coincide with a fierce competition among domestic carriers to garner a bigger chunk of the business pie. Several prominent carriers such as Jet Airways, IndiGo and SpiceJet are offering discounts to retain high load factors.

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