Higher ATF prices, Rupee depreciation likely to pose threat to domestic carriers' recovery: Report

“In India, ATF accounts for around 45% of the operational cost of an airline. Besides, as much as 35-50% of the airlines’ operating expenses are U. S. dollar driven,” as per ICRA.

Higher Aviation Turbine Fuel (ATF) prices and Rupee depreciation are likely to pose a serious threat to the recovery process for domestic carriers, credit ratings agency ICRA said on August 17.

“In India, ATF accounts for around 45% of the operational cost of an airline. Besides, as much as 35-50% of the airlines’ operating expenses are U.S. dollar driven,” as per ICRA.

An area of concern remains the ATF prices, which surged by around 77% Y-O-Y in August, given the increased crude oil prices due to geo-political issues arising from the Russian invasion of Ukraine, the ratings agency said.

On an aggregate basis, it said a return to normalcy will lead to recovery in passenger load factors, which, in turn, will aid revenues; however, these two factors will continue to weigh on the domestic airlines'' earnings in FY23.

Apart from this, the expected launch of Jet Airways and the entry of Akasa Air, are likely to intensify the competition for the domestic carriers.

"ICRA believes that the domestic air traffic yields have moved up by 25-30% over pre-COVID levels on domestic routes. The industry earnings in FY2023 will continue to reel under pressure owing to the elevated jet fuel prices, coupled with the depreciation of the Indian Rupee against the US dollar," Suprio Banerjee, vice-president and sector head at ICRA, said.