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Business News/ Companies / News/  Airlines seen posting higher profits in 2017-18 on flight fare hikes
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Airlines seen posting higher profits in 2017-18 on flight fare hikes

Icra estimates private airlines' total profit for 2017-18 at Rs3,200 crore against the Rs2,600 crore they posted in fiscal 2016-17

As jet fuel prices rose in tandem with the rise in global crude oil prices, airlines raised flight fares to offset the increase. Photo: Abhijit Bhatlekar/MintPremium
As jet fuel prices rose in tandem with the rise in global crude oil prices, airlines raised flight fares to offset the increase. Photo: Abhijit Bhatlekar/Mint

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, vice-president at ratings company 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 Rs3,200 crore against the Rs2,600 crore they posted in fiscal 2016-17. Jet Airways clocked Rs390 crore profit in 2016-17, IndiGo Rs1,659 crore and SpiceJet Rs431 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% during same time last fiscal, 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.

Higher profits may not last long, though.

“The expected sizeable capacity addition over the next three years is likely to impact the ability of the airlines to withhold the gains. The expected increase in competitive intensity might put downward pressure on yields. While the industry continues to take measures for improvement in the cost structure, it still remains susceptible to unexpected shocks, primarily hikes in aviation turbine fuel (ATF) prices," Icra said.

With large capacity expansion plans, either owned (through debt funding) or on operating lease, the debt level of the industry is also expected to remain high in the medium term.

Further, any unfavourable changes in ATF prices may pose short-term liquidity problems.

As of March, Jet Airways had a debt of Rs9,098 crore, Spicejet Rs1,155 crore, IndiGo Rs2,596 crore and GoAir Rs2,300 crore, according to Icra.

IndiGo’s chief financial officer Rohit Philip said in October that higher fares and better revenue management also helped the airline’s profits this year.

“I think you saw little better pricing overall in the industry with respect to prices within the last week of travel held up better than it has previously. But clearly, we made a lot of improvements in how we manage our yield as well, so it is a combination of both factors," Philip said during an investor call on 31 October. “You will see some of that start to taper off, I am not commenting about forward-looking yields, I am just commenting about our base from last year. So some of that started to improve even in the third quarter and little bit more in the fourth quarter. But really, Q1 was when we had most of it in place."

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Published: 06 Dec 2017, 02:29 AM IST
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