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Mumbai: Losses of Indian airlines could come down by another 40% in the current financial year. They are expected to post reduced losses of $680-750 million for the current financial year against $1.2-1.7 billion in the last financial year.

Low-fare airlines such as IndiGo and SpiceJet are expected to generate a combined profit of $200-220 million, while full-service airlines such as Jet Airways and Air India could post losses of $900-950 million.

This is according to Indian Aviation Outlook, released by aviation consultancy firm Capa India on Monday. The estimates are based on assumptions of oil prices at $60-70 a barrel and an exchange rate of 64-66 to the US dollar. Fuel costs account for 45-55% of the revenue of domestic airlines. A 4% reduction in fuel cost may potentially add around 2% to operating margins.

Also, a failure to maintain pricing discipline is the key risk to improved financials as the challenging cash position of several airlines is driving some of them to compromise on yields, despite improving demand-supply conditions in the market, Capa cautioned.

The report said that with balance sheets remaining weak in the case of several airlines, significant capitalization to the value of an estimated $1.2-1.5 billion will be required over the next 12 months.

“We expect one or more airlines to float an initial public offer (IPO) during the next 18 months," Capa said.

Indian airlines have lost more than $10 billion since fiscal 2009. Airline debt stands at around $11.3 billion, rising to close to $14 billion if liabilities to vendors are included. At an industry level, airline debt is now equivalent to more than 100% of airline revenue, and in the case of some carriers such as state-run Air India, it is more than 200% of revenue. For most airlines, cash balance remains tight.

Jet Airways (India) Ltd, the country’s second largest airline by passengers carried, reported a fiscal fourth-quarter loss as it took an impairment charge on an investment in its subsidiary JetLite (India) Ltd and several other one-off items. The Mumbai-based airline reported a net loss of 1,728.99 crore for the quarter ended March, compared with a net loss of 2,153.57 crore in the year-ago period.

SpiceJet Ltd, India’s second-largest low-fare airline, swung to profit in the fourth quarter, beating analysts’ estimates, after six straight quarters of losses. The airline reported a net profit of 22.5 crore for the quarter ended March compared to a loss of 321.5 crore in the year-ago period. Capa said IndiGo, the country’s largest airline by passengers carried and run by InterGlobe Aviation Ltd, saw strong growth in total revenue in FY 2015. It crossed $2.5 billion.

GoAir (run by the Wadia Group’s Go Airlines (India) Ltd) is the only other carrier that is understood to have been in the black, with an estimated profit of $14-15 million for the last financial year, close to its peak result posted in FY 2013.

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