Mumbai: Low crude prices, increasing efficiency and rising air traffic will help the domestic airlines bring down their losses massively this fiscal to around Rs 5,500 crore from around Rs 8,500 crore last year, says an analyst report.

Operating performance of the domestic airlines is likely to improve even though concerns on their structural viability still remain, adds the report by domestic rating agency Icra.

"We expect the domestic airlines to continue to improve their performance in FY16 given the favourable jet fuel pricing environment. We expect their aggregate losses to further come down to around Rs 5,500 crore in FY16 from around Rs 8,500 crore in FY15," Icra said in a report.

As per the report, lower fuel cost, which accounts for about 50 per cent of operating expenditure for airlines, has resulted in 12-13 per cent reduction in operating cost. Between June 2014 and June 2015, crude prices fell nearly 55 per cent though it has since inched back to USD 50-55 a barrel.

It can be noted that the industry-wide loss has come down by almost 40 per cent in FY15 to Rs 7,500-Rs 8,500 crore, even

though airlines continued to report weak financial performance last fiscal.

The report has, however, warned that the industry is still subject to ongoing structural challenges apart from intense competition putting pressure on yields.

Fuel costs constitute close to half of operating cost for airlines and the past seven years have been reporting heavy losses. But since crude prices have nearly halved in the past few quarters, all the carriers reported profits in  June quarter and are likely to better the numbers in Q2.

On top of it, air traffic has been on a steady rise with each month showing double digit growth in domestic traffic.

Over the past two years, five new airlines -- Vistara, Air Asia, Air Costa, Air Pegasus and TruJet -- entered the market taking the number of scheduled airlines to 10.

"In addition to declining fuel prices, efficiency gains through process improvements, route rationalisation and careful balancing of capacity with demand are other factors which have supported the improved operating performance of airlines," says the report.

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