SP's Airbuz



In October 2018, IndiGo reported its second quarter results of the fiscal year 2018-2019 (Q2FY19). The result was a net loss of Rs 652.1 crore and highlighte­d the challenges facing Indian aviation. Incidental­ly, this is the first time since its listing in the public markets that IndiGo reported a loss and it is fair to say that all airlines will report losses for this quarter. Fuel, as a cost item is now 40 per cent of the cost base for the entire industry. The fuel cost rose by a whopping 84.3 per cent compared to the same quarter last year. To add to this, the rupee fell against the dollar further affecting cost. These costs can be passed on to consumers via a fuel surcharge. However, IndiGo was not successful in doing so as competitor­s did not levy this charge. Thus there is a situation where costs are rising, but fares are not rising in the same proportion and this has a direct effect on airline margins. Accordingl­y, this was reflected in the much lower EBITDAR margins for IndiGo. The rupee weakness further added to IndiGo’s price pressures. 50 per cent of IndiGo’s costs are denominate­d in dollars. Thus any change in the exchange rate has an impact on cash-outflows.

In the final analysis, Q2FY19 may have marked a turning point in Indian aviation and forced both airlines and the government to stand up and take notice of the fragile state of airlines. Jet Airways continues to grapple with financial challenges, SpiceJet has asked for lease moratorium­s, GoAir is likely looking to sublease aircraft to reduce capacity. Air India and Vistara both have reported sizeable losses.

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