India: Airlines face headwinds as oil prices rally

India’s airlines have enjoyed their most successful few years as passenger numbers, revenues and profits have surged in an era of growing prosperity and cheap oil. But as oil prices rise, clouds are gathering. The country’s listed aviation companies lost altitude this month following news that quarterly profits at IndiGo, India’s largest private airline, had slumped 73%. Since that news broke at the start of the month, Interglobe Aviation, IndiGo’s parent, and its two listed rivals Jet and SpiceJet have collectively lost some $1.8b in equity value.  Indian carriers have until recently been some of the fastest-growing in the world, with passenger numbers rising 24% in the past year. As a result, they have emerged as key buyers for the likes of Boeing and Airbus, with more than 900 aircraft on order. Boeing forecasts India will account for 5% of its orders until 2036, while Airbus says it plans to sell one aircraft a week to India for the next 10 years. But analysts question whether these airlines, which have benefited as millions of Indians have abandoned trains for air travel, can continue to thrive with the price of oil above $75 a barrel. “It is clear looking at IndiGo’s earnings this quarter that the dent caused by higher oil prices is going to be significant,” said Madhukar Ladha, an analyst at HDFC Securities. Other global aviation companies are also feeling the squeeze of higher oil prices but India’s airlines have always particularly suffered when costs are high because their customers are highly price sensitive. <br/>