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Domestic airlines face challenges due to USD crunch, Taka devaluation

Arifur Rahman Rabbi
23 Feb 2024 22:03:37 | Update: 24 Feb 2024 12:14:34
Domestic airlines face challenges due to USD crunch, Taka devaluation

Businesses are going through challenges due to high inflation, USD crunch and negative effect of the volatile exchange rate. This has had an impact on the domestic aviation sector too. Domestic airlines, like other businesses, continue to fight for survival by meeting their operational costs.

Business insiders say that the airlines’ operating expenses have increased by 25 to 30 per cent due to an increase of USD price and devaluation of Taka. Earlier, the exchange rate of US dollars was Tk 80-Tk 85, but now it has been increased to Tk 110-Tk 120.

As a result, airlines have to pay more than what they used to spend on fuel, parts or other things. Even they cannot adjust the airfare due to the devaluation of Taka or the price increase of USD. So, domestic airlines are facing more challenges than foreign airliners, they say.

Aviation expert Kazi Wahidul Alam told The Business Post that the dollar crisis and the exchange rate hike have affected all businesses. “Passengers across the world now don't look at domestic or foreign airlines rather they look at quality, service and low fares. But our operational costs are going up.”

Mentioning that the airlines industry is a capital intensive industry, the expert said, “Whatever we do here, we have to spend money. It’s not a couple of bucks, it’s a million dollar business. Due to the dollar crisis, LCs cannot be opened to buy anything.”

Operating costs have increased because of jet fuel and other expenses. Due to the dollar crisis, the domestic airlines are suffering a lot. If this situation continues for a long time, it will become difficult for them to sustain, he added.

Business insiders say that currently a total of 28 foreign and four domestic airlines operate an average of 140-145 flights from Bangladesh every day. About 70 per cent of Bangladesh's aviation market is with foreign airlines and only 30 per cent to domestic airlines. In such a situation, if the dollar crisis or inflation continues, the entire market can be taken over by foreign airlines, they added.

Wahid further said that airline business has a very competitive market. The world's major air carriers such as Kuwait, Qatar, Saudi, Emirates are doing good business. “They do not face USD crisis so that they have potential to catch up our aviation business.”

Biman Bangladesh Airlines, the national flag carrier, holds a 30 per cent share of the country’s aviation industry. In FY23, the company made a profit of only Tk 28 crore.

Biman Bangladesh Airlines Managing Director and CEO Shafiul Azim told The Business Post that due to the devaluation of Taka against USD, they are unable to show the profit of around Tk 1,395 crore. “But we are still making profits.”

They have to pay more for jet fuel and landing tax in local currency, he said, adding that earlier, they had to pay Tk80-85 against one dollar. Now the exchange rate increased to Tk 115-120. On the other hand, they have to pay pilot and cabin crew allowance as well as pay bills abroad, he said.

Shafiul Azim said that they have to pay more in foreign payments for operating flights abroad. “That's why I have to pay more when I go to buy dollars from the market. This has increased the cost of our domestic airlines.”

US-Bangla Airlines General Manager (Marketing Support & PR) Kamrul Islam told The Business Post that they have been facing the dollar crisis for the last two to three months. “Due to currency devaluation, our overall operational costs have increased. We are losing business. Unless it is brought under control, the aviation and tourism industries will suffer,” he said.

Now the exchange rate of US dollars is Tk 118-120. Considering that the cost has increased by 20 to 25 per cent. “But we are not able to increase the plane fare accordingly because of the competitive market. In that case, as an operator, it has become a big challenge to survive by insuring the service,” he said.

Wahidul Alam said that no one wants to go into this business for huge investments. Earlier, 8-10 airlines started this business, but they could not sustain. Now a couple of airlines are coming. If they don't get opportunity to do business, how long will they lose? If they cannot make profits, they will go out of this business.

Business insiders said that the government should take steps to boost this industry. They also hope to turn around if the market stabilises after overcoming the dollar crisis.