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Domestic airlines expected to reduce losses this fiscal: ICRA

Shemin Joy, New Delhi, DH News Service, Dec 5 2017, 14:40 IST
The credit rating agency warned that inadequate aviation infrastructure, which has constrained the performance of airlines, remained a bottleneck.

The credit rating agency warned that inadequate aviation infrastructure, which has constrained the performance of airlines, remained a bottleneck.

Domestic airlines are expected to reduce losses this fiscal riding on healthy seat occupancy coupled by a moderation in capacity, rise in tourism demand and economic environment, a credit rating agency said on Tuesday.

According to ICRA, improved tourism demand, supportive policy measures like the National Civil Aviation Policy and the Regional Connectivity Scheme (UDAN) and the start of economic revival are the key positives for the aviation industry.

However, it warned that inadequate aviation infrastructure, which has constrained the performance of airlines, remained a bottleneck.

The report said that rising seat occupancy supported by a decline in competitive intensity due to moderation in capacity addition and suspension of operations of three regional airlines has augured well for the industry profitability.

Kinjal Shah, ICRA assistant vice president and co-head (corporate sector ratings), said, "The increased ability of the airlines to pass on the costs to the customers due to reduced competitive intensity has resulted in an increase in the revenue per available seat kilometre (RASK) cost per available seat kilometre (CASK) spread for the airlines, and the financial performance of most of the airlines improved during the current year."

"With peak season demand expected to be robust in the second half of 2017-18, the aggregate net loss of the industry is expected to reduce to Rs 500 million to Rs 1 billion in 2017-18 from Rs 10 billion in the previous year. It has to be noted that the loss is primarily on account of losses of Air India, while all other major airlines are expected to report profits during the year," Shah said.

All major airlines are expected to report higher net profits this fiscal. However, with many of the airlines having large capacity expansion plans, which may be either owned or on operating lease, the debt level of the industry is expected to remain high in the medium term.

"Further, any unfavourable changes in ATF prices may pose short-term liquidity problems for the industry," Shah warned.

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