Mumbai: Indian airlines may plunge into their steepest loss in a decade this financial year, slammed by rising operating costs caused mainly by high jet fuel prices and a weak rupee, Crisil Ratings said on Thursday. “At an estimated 9,300 crore, the industry’s losses at EBIT (earnings before interest and tax) level would surpass the 7,348 crore blow it was dealt in fiscal 2014," said the ratings firm in a report. Airlines in the country posted “aggregate profit of 4,000 crore on an average at the EBIT level" from FY14 to FY18, when global crude oil prices stayed low, according to the report.

A weak rupee adds to the woes of airlines as most of their expenses are dollar-denominated while aviation turbine fuel (ATF) accounts for 35-40% of the total cost of airlines.

“With ATF prices expected to average 28% higher on-year compared with fiscal 2018, the impact will be significant," said Crisil.

“The blow on this count is also expected to be severe given that the rupee has depreciated 13% against the dollar since March 2018," it added.

Indian airlines haven’t fared well due to cost pressures in the last few quarters. Intense competition has also prevented them from raising fares sufficiently to cover the increased costs.

“Almost two-thirds of an airline’s cost, and therefore profitability, is susceptible to fluctuations in forex rates and ATF prices," said Crisil Ratings’ senior director Sachin Gupta. “To offset the increase in operating cost, the industry will have to raise average fares by 12%—that, too, assuming there is no change in the passenger load factor (PLF)," he said but added that the “aggressive expansion plans of carriers and the race to maintain high PLFs will keep competitive intensity high and limit their ability to increase fares."

Among the listed airlines, InterGlobe Aviation Ltd, which runs IndiGo, swung to its maiden quarterly loss since it went public, in the September quarter at 652.13 crore, compared with a year-earlier profit of 551.56 crore.

Jet Airways and SpiceJet are yet to report their September quarter results.

In the June quarter, SpiceJet plunged to a loss from a year-earlier net profit. Jet Airways also reported a loss in the June quarter due to higher fuel costs and foreign exchange losses.

Jet Airways, which had a 14.2% of share of the domestic market in September, is in urgent need to raise cash to stay afloat.

The management of Jet Airways has drafted a turnaround plan for the airline, which includes a cost reduction programme of more than 2,000 crore over two years, a plan to improve pricing, better inventory management, leveraging the Jet Privilege Pvt. Ltd loyalty programme, capital infusion and fleet simplification.

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Meanwhile, the government’s recent move to cut the excise duty levied on jet fuel by 300 basis points to 11%, is not expected to provide much relief to airlines. One hundred basis points equal one percentage point.

Indian carriers are expected to report losses of $1.65-1.90 billion in FY19, Capa India, an industry consultancy, said in a recent report.

“Airlines will need to adjust to a new normal of higher costs and excess capacity. This may take time. Until then, industry losses are likely to increase," CAPA India said in its latest aviation outlook.