Airline losses might come down 35% to Rs 5,500 cr this financial year: ICRA

According to the report, lower fuel cost, which accounts for about half of operating expenditure, has resulted in 12-13% reduction in operating cost

Low crude oil prices, increasing efficiency and rising air traffic will help domestic airlines bring down their losses massively this financial year to around Rs 5,500 crore from about Rs 8,500 crore last year, says an analyst report.

Operating performance of the domestic airlines is likely to improve, even though concerns on structural viability remain, adds the report by domestic rating agency ICRA.

According to the report, lower fuel cost, which accounts for about half of operating expenditure, has resulted in 12-13 per cent reduction in operating cost.

Between June 2014 and June 2015, crude oil prices fell nearly 55 per cent though it has since inched back to $50-55 a barrel.

It can be noted the industry-wide loss fell 40 per cent in FY15 to Rs 7,500-Rs 8,500 crore, even though airlines continued to report weak financial performance last financial year.

The report has, however, warned that the sector is still subject to ongoing structural challenges.

Fuel costs constitute close to half of operating cost for airlines and the past seven years have been reporting heavy losses. But since crude prices have nearly halved in the past few quarters, all the carriers reported profits in June quarter and are likely to better the numbers in Q2.

On top of it, air traffic has been on a steady rise with each month showing double digit growth in domestic traffic.

Over the past two years, five new airlines -- Vistara, Air Asia, Air Costa, Air Pegasus and TruJet -- entered the market taking the number of scheduled airlines to 10.

"In addition to declining fuel prices, efficiency gains through process improvements, route rationalisation and careful balancing of capacity with demand are other factors which have supported the improved operating performance of airlines," says the report.