Rising crude and falling rupee is acting as a double whammy for airline stocks

Capitalstars Financial Research

Starting from RPK, it goes on to ASK, RASK, CASK and so on. Looks like they are designed to deceive rather than to help to dissect.

Still, no harm in understanding what are they. RPK refers to revenue per passenger-kilometer while ASK refers to available seat-kilometer.Rest should be easy with RASK pointing to revenue per available seat-kilometer and CASK representing the cost side of the equation.

If analyst’s job is to distil the complex numbers into a simple insight, here is this simple question that can help to distil and understand the economics of airline business, particularly in the Indian context.

For many industries, demand outlook defines and dictates profitability. A brighter outlook on demand invariably means buoyant profits. But that equation hardly holds for the airline industry.

With buzzing airports and jammed taxiways, demand is the last thing the airlines are anxious about. While there is no dearth of demand for air travel.

The lethal combination of rising crude oil prices and falling rupee is likely to act as a double whammy and could wreck the pricing plans of relatively stronger ones further with significant spare capacity at their disposal.

To answer that simple question we had posted above, the industry’s lack of pricing power may be arising from the rare blend of industry’s inherent fixed cost structures and spare capacity in the hands of weaker players.

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