Airlines to remain in red even if crude prices fall: Crisil
Airlines operators in India would continue to incur losses even if there is a significant fall in crude oil prices. Avoid airline food | In pics: Most expensive ship
By PTI |
NEW DELHI: Airlines operators in India would continue to incur losses even if there is a significant fall in crude oil prices, if they do not undertake a revenue augmentation exercise in conjunction with cost-cutting measures and efficiency improvement initiatives soon, a leading research firm warned today.
"The sharp increase in crude oil prices in the first half of 2008 has led to a corresponding rise in the price of aviation turbine fuel (ATF) for all airline companies, due to which they are expected to post heavy losses," a Crisil Research report said today.
Fuel cost as a percentage of total operating costs has increased by 300-600 basis points.
"Although airlines have gradually increased the fuel surcharge to counter the impact of rising ATF prices, they continue to remain in the red. This incessant increase in the price of ATF and the consequent increase in ticket prices have led to a reduction in growth of passenger traffic, thereby leading to a drop in passenger load factors," Crisil Research Head Sudhir Nair said.
Even at sharply lower crude oil prices, airlines will not break-even and a structural increase in ticket prices is required in the near term, Nair added.
Given that the crude oil prices are in the region of 130 dollar per barrel, at current ticket prices even if the airlines operate at 100 per cent load factors, Low Cost Carriers will not break-even and Full Service Carriers would just break-even at an operating level, the study said.
"As operating at load factors of close to 100 per cent is not realistic, there is an urgent need for airlines to undertake a revenue augmentation exercise in conjunction with large scale cost reduction and efficiency improvement initiatives," it said.
"The sharp increase in crude oil prices in the first half of 2008 has led to a corresponding rise in the price of aviation turbine fuel (ATF) for all airline companies, due to which they are expected to post heavy losses," a Crisil Research report said today.
Fuel cost as a percentage of total operating costs has increased by 300-600 basis points.
"Although airlines have gradually increased the fuel surcharge to counter the impact of rising ATF prices, they continue to remain in the red. This incessant increase in the price of ATF and the consequent increase in ticket prices have led to a reduction in growth of passenger traffic, thereby leading to a drop in passenger load factors," Crisil Research Head Sudhir Nair said.
Even at sharply lower crude oil prices, airlines will not break-even and a structural increase in ticket prices is required in the near term, Nair added.
Given that the crude oil prices are in the region of 130 dollar per barrel, at current ticket prices even if the airlines operate at 100 per cent load factors, Low Cost Carriers will not break-even and Full Service Carriers would just break-even at an operating level, the study said.
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"As operating at load factors of close to 100 per cent is not realistic, there is an urgent need for airlines to undertake a revenue augmentation exercise in conjunction with large scale cost reduction and efficiency improvement initiatives," it said.
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