The depreciation of the rupee is putting pressure on Air India’s cost structure; international airlines provide hedges: Company executive
The depreciation of the rupee is putting pressure on Air India’s cost and profit margins but the airline has a natural hedge as it can charge more for international flights when tickets are purchased in a foreign currency, according to the company’s top executive.
In recent weeks, the Indian rupee has been depreciating and touched a record low of 86.04 against the US dollar on January 10. A weak rupee results in higher operating costs for airlines as most of their costs are in dollars.
Air India Chief Commercial Officer Nipun Aggarwal said that the depreciation of the rupee is certainly a challenge for the industry and for Air India, and this situation should be addressed by improving productivity and taking other measures.
“The depreciation of the rupee puts a lot of pressure on our costs because most of our costs are in dollars except for labor costs which are local currency.
“When the rupee falls more, it puts more pressure on our cost structure, on our profitability,” he said at a press conference this week.
Air India Group operates 1,168 daily flights, including 313 international services. Of those international flights, 244 are short-haul and 69 are long-haul.
The group includes Air India and low-cost carrier Air India Express.
Last year, Air India merged Vistara with it and AIX Connect merged with Air India Express.
According to Aggarwal, the airline has a natural hedge as it flies to more countries than other airlines.
“So, we’re able to charge in international currency for international flights and we’re able to pass some of that impact on to our customers because we charge in dollars or whatever currency there is,” he said.
At the same time, Aggarwal noted that not everything has an overseas currency value.
“Even in international flights, we have an impact but some of them are reduced by the hedge we have but it affects our profitability and puts pressure on the fares in the market”.
Increasing airline costs is not easy as the industry is highly competitive and demand is price sensitive, said Aggarwal, seeking to highlight the low profitability of the airline industry.
“We have to fill the plane and if we had so much pricing power, the profitability of the airline industry would not be what it is today. This makes it very challenging for us to operate… our cost structure, the impact on profit and demand,” he said.
In December, the International Air Transport Association (IATA) estimated that the global airline industry’s revenue will be $36.6 billion this year with a profit margin of 3.6 percent.
“Average gross profit per passenger is expected to be $7 (down from the peak of $7.9 in 2023 but an improvement from $6.4 in 2024),” IATA said in its 2025 financial outlook.
Air India is a member of IATA.
Taking a broader view, Aggarwal also pointed out that the rupee has been depreciating by around 2-3 percent every year for the past many years, and not only the aviation industry but many other sectors have become accustomed to this situation.
“We are no different from that. We will deal with it and we are confident that it is not such a big deal,” he added.
Loss-making Air India is using a turnaround strategy and is gradually expanding its fleet and network amid growing demand for flights.
