Rupee woes spread across sectors; govt-RBI in combat mode.
New Delhi: The rupee’s plunge against the dollar threatens to eat into airlines' profit as nearly 70 per cent of their expenses are in dollars. Lease rental, maintenance, spare parts, pilot training and a part of crew allowances are a few items that come under the head of payments in the US currency.
The rupee on Monday hit a new low of Rs 72.67 intraday against dollar on strong dollar demand from importers in view of the greenback strengthening in the overseas market on upbeat jobs data in the US.
The exchange rate has already taken a toll on major carriers Jet Airways, IndiGo and SpiceJet. The hit is severe in case of low-cost airlines which earn major chunk of revenue in rupee but have to pay in dollars.
“A 10 per cent depreciation in rupee results in 7 per cent increase in overall cost," said a senior airline executive. The domestic currency has depreciated by nearly 12 per cent so fat in 2018. To put it simply, supposing an airline's expenditure is Rs 2,000 crore per month. Nearly 70 per cent of the expenditure being dollar-related means Rs 1,400 crore expense is dollar-related. Now, if the rupee depreciates by 10 per cent, Rs 140 crore will be the impact per month.
With fuel price on the rise and rupee falling steadily, it is a double whammy for airlines. While the largest carrier IndiGo saw its profit sliding 97 per cent in April-June quarter, the other two major carriers Jet Airways and SpiceJet reported losses during this period. Jet Airways' losses of Rs 1,326 crore in the first quarter of the fiscal shocked market watchers and industry experts. “Q1 FY19 cost includes the impact of forex loss amounting to Rs 366 crore,” Jet had said in its presentation to investors.
In its earnings call, IndiGo chief financial officer Rohit Philip had noted that rupee depreciated significantly during the April-June quarter and closed at Rs.68.44 per dollar. Based on this, the airline booked a foreign exchange loss of Rs 2.5 billion (250 crore) in this period. In response to FC query on impact of falling rupee on the sector, full-service carrier Vistara said that depreciation in the value of rupee and an increase in fuel prices have spiked operating cost for all airlines and made business even more challenging.
“While we remain hopeful of the economic growth and the efforts of the government in helping reduce high taxes and other charges, we are actively working on further trimming our non-customer facing expenses and make our cost structure even leaner. We will continue to be innovative, vigilant and nimble to achieve cost leadership,” the Vistara executive said.
An airline industry source said that airlines like Jet Airways and Air India are likely to suffer less compared to other airlines as they earn a large portion of their revenue in foreign currencies.
For instance, the share of international revenues to total revenues in case of Jet Airways was 53.6 per cent in the April-June quarter. Air India has almost 70 per cent of its capacity on international routes so earnings in dollar and other global currencies account for a significant part of its total revenue.
“Now that when airlines are going for expansion, they will be further affected by dollar appreciation. The Libor is also going up simultaneously. It has risen 3-4 per cent in the last 2 years. So, foreign exchange borrowing has also become expensive,” a top A-I executive said.
“Now, because RBI is increasing rates, borrowing locally is also going up. So, the cost of Indian borrowing, the cost of forex borrowing, rupee depreciation and high ATF price are together affecting the airline industry badly,” the said.