Airlines seen posting higher profits in FY18 on fare hikes

NEW DELHI: Airlines in India are expected to post better profits this financial year as they could raise fares because of limited capacity addition in the domestic market, a report said. As jet fuel prices rose in tandem with the rise in global crude oil prices, airlines raised fares to offset the increase.

“The increased ability of the airlines to pass on the costs to the customers due to reduced competitive intensity has resulted in improved financial performance of most of the airlines during the current year,” Kinjal Shah, vicepresident at Icra Ltd, said in a report on Tuesday.

Icra said all major airlines will post better profits this fiscal, compared with the last year. The rating agency estimates private airlines’ total profit for 2017-18 would come in at about ₹3,200 crore against the ₹2,600 crore they posted in fiscal 2016-17. Jet Airways clocked ₹390-crore profit in 2016-17, Indigo ₹1,659 crore and Spicejet ₹431 crore.

Higher profits will largely be because of reduced capacity addition. This fiscal, Indigo did not receive dozens of planes from Airbus as scheduled because of faulty engines on the A320neo aircraft. That affected its operations, but also brought windfall gains from engine makers Pratt & Whitney in compensation.

Indigo reported 9.9% growth in this period, as against 28.1% a year ago, Icra said. As a result of this, capacity growth moderated to 14.1% during first half of this fiscal compared to 19.6% during the year ago period.

Capacity addition by Spicejet, Vistara and Airasia India supported overall industry capacity addition during this year.

Overall, domestic capacity is expected to grow 15-17% during this fiscal, lower than earlier estimates of 17-20%, Icra said.