Falling rupee puts pressure on Air India’s cost structure; international flights provide hedge: Company official, BA

Falling rupee puts pressure on Air India’s cost structure and profitability but the airline has some natural hedge as it can charge more for international flights where tickets are priced in foreign currencies, according to a senior company official. In recent weeks, the Indian rupee has been on a decline and touched a record low of 86.04 against the US dollar on January 10. A weak rupee results in higher operational expenses for airlines as most of their costs are in dollars.

Air India’s Chief Commercial Officer Nipun Aggarwal said the declining rupee definitely poses a challenge to the industry and to Air India, and the situation has to be dealt with by improving productivity and taking other initiatives.

“Falling rupee does put pressure on our cost structure because most of our cost is dollarized barring the manpower cost which is in local currency. The more the rupee falls, the more pressure it puts on our cost structure, on our profitability,” he said at a media briefing this week.

Air India Group operates 1,168 daily flights, including 313 services to international destinations. Of those overseas flights, 244 are short haul and 69 are long haul. The group comprises Air India and low-cost carrier Air India Express. Last year, Air India merged Vistara with itself and AIX Connect was integrated with Air India Express.

According to Aggarwal, the airline has some natural hedge as it flies international lot more than other airlines.

“So, we are able to charge in international currency for international flights and we are able to pass on some of that impact to our customers because we are pricing in dollars or whatever currency is there,” he said.

At the same time, Aggarwal noted that not everything is priced in overseas currencies.

“Even on international flights, we do have some impact but some of those are mitigated with the hedge we have but it impacts our profitability and puts pressure on the fares in the market”.

Increasing airfares is not easy as the industry is very competitive and the demand is sensitive to pricing, Aggarwal said, seeking to highlight the low profitability of the airline industry.

“We do have to fill the aircraft and if we had so much pricing power, the airline industry’s profitability would not be what it is today. This makes it very challenging for us to operate… it (falling rupee) will put pressure on our cost structure, impact profitability and demand,” he noted.

In December, the International Air Transport Association (IATA) projected global airline industry’s net profit at USD 36.6 billion this year for a 3.6 per cent net profit margin.

“Average net profit per passenger is expected to be USD 7 (below the USD 7.9 high in 2023 but an improvement from USD 6.4 in 2024),” IATA said in its financial outlook for 2025.

Air India is an IATA member. Taking a broader view, Aggarwal also pointed out that the rupee has been depreciating around 2-3 per cent every year for the last many years, and not just the airline industry but many other sectors have become used to the situation.

“We are also not unique in that respect. We will deal with it and are confident that it is not such a big issue,” he added.

The loss-making Air India is implementing an ambitious transformation plan and is slowly expanding its fleet as well as network amid rising air traffic demand.