A senior company official said that the falling rupee has put pressure on Air India’s cost structure and profit. However, Air India has some natural insurance as it can charge more when tickets are priced abroad. In recent weeks, the Indian rupee was on a downward spiral and hit a new record low of 86.04 per dollar on January 10, according to a senior company official. Airlines incur higher operating costs due to a weaker rupee, as the majority of their costs are in US dollars.
Nipun Aggarwal, Chief Commercial Officer of Air India, said that the falling rupee is a challenge for the industry and Air India. The situation must be addressed by improving productivity and other initiatives.
“A falling rupee does put pressure our cost structure, because most of the costs are in dollars except for manpower costs which are in local currency. The more the dollar falls, the greater the pressure on our cost structure and our profitability,” he told a press briefing this week.
Air India Group has 1,168 flights per day, including 313 to international destinations. 244 of these flights are short-haul and 69 long-haul. Air India Express and Air India are part of the group. Air India merged Vistara and AIX Connect with Air India Express last year.
Aggarwal says that the airline is a natural hedge because it flies internationally a lot more than any other airline.
He said: “We can charge in the currency of the destination country for international flights. We can pass some of this impact on to our customers, because we price in dollars or whatever currency there is.”
Aggarwal also noted that not all prices are in foreign currencies.
“Even when flying internationally, we have an impact. Some of these are mitigated by the hedges we have. But it impacts our profits and puts pressure on fares on the market.”
Aggarwal, who was trying to highlight the low profitability in the airline industry, said it is difficult to increase airfares because the industry has a high level of competition and the demand for the product is sensitive to price.
“We need to fill the planes and if we didn’t have such pricing power, airline profitability wouldn’t be what it is now.” This makes it difficult for us to operate… the falling rupee will put pressure on our costs structure, impacting profitability and demand,” said he.
In December, IATA (International Air Transport Association) projected the global airline industry’s net profit to be USD 36.6 billion in this year. This represents a net profit margin of 3.6 percent.
IATA stated in its financial outlook 2025 that “Average Net Profit per Passenger is expected to reach USD 7 (a little below the USD 7.9 in 2023 and an improvement from USD 6.8 in 2024).”
Air India is a IATA member. Aggarwal pointed out, on a larger scale, that the rupee had been depreciating by around 2 to 3 percent every year over the past few years.
He added:
“We’re not the only ones who do this. We will deal it and we are confident it is not a big problem”
Air India, which is losing money, has implemented an ambitious transformation program and is slowly growing its fleet and network in response to the rising demand for air traffic.
