Re fall ups airlines' expenses by 5%

A weakening rupee has taken its toll on the domestic aviation industry as it has increased airlines’ monthly expenses by around 5 per cent.

The rupee touched a five-year high today crossing the Rs 47-mark. The average value of the currency against the dollar during September was almost 14 per cent lower than in April. More than a third of an airline's costs are dollar denominated.

Major heads of expenditure include aircraft ownership costs (including rentals for leased aircraft and interests payment on acquired aircraft) accounting for around 15 per cent of the total cost and maintenance and spare costs accounting for another 10 per cent. Other important components include international training costs, and a certain chunk of sales and distribution cost accounting for another 10 per cent of the total cost.

For instance, low-cost carrier SpiceJet pays around $10 million every month as aircraft lease rentals. While the company's average rupee outflow for April would have been Rs 40.02 crore, for September it will be around Rs 45.58 crore. Similarly, it pays around $500,000 for aircraft maintenance and spares. This would mean a cash outflow of Rs 2 crore in April and around Rs 2.3 crore in September.

The numbers would be even higher for full service carriers who have placed orders for new-generation Boeing 737s, 777s and Airbus A330s. Their lease rentals have gone up considerably in recent times.

An indirect impact of the falling rupee was felt on the prices of aviation turbine fuel (ATF). The decline in crude oil prices during September would have resulted in a near double-digit decline in the Indian ATF prices as well, but the weakening of the rupee eroded the positive impact leading to a decrease of slightly more than 5 per cent in ATF prices. While crude oil prices declined by 14 per cent during September compared with August, the rupee weakened by around 6.5 per cent during the same period.

However, full service carriers such as Air India and Jet Airways could hedge against the impact of falling rupee as their international operations bring in dollar revenues.

"While around 35 per cent of our expenses are in foreign exchange, 25 per cent of our total revenues are also in dollars which comes from international passenger sales. The net impact will thus be only 10 per cent," said a Jet Airways executive.

However, experts said that Kingfisher, which has just started its international operations, would have a minuscule percentage of revenues coming from international operations, so the impact of weak rupee would be bigger.