Credit rating agency ICRA on Monday raised Indian aviation industry outlook to ‘stable’ from ‘negative’ as net losses of the sector is estimated to decline sharply to around Rs 5,000-7,000 crore in 2023-24 from around Rs 11,000-13,000 crore in the current fiscal on the back of jump in passenger traffic.
As per ICRA, domestic passenger traffic is expected to grow by 8-13 per cent in the financial year 2023-24 after growing by 55-60 per cent in the current fiscal.
The size of domestic passenger traffic is estimated to reach 145-150 million in 2023-24, which is much higher than the pre-Covid levels.
In the first 10 months of the current financial year domestic passenger traffic rose to 111 million, witnessing a year-on-year growth of 66.2 per cent. It trailed the pre-Covid levels by only 8.3 per cent.
“The pace of recovery in industry earnings will be gradual owing to the high fixed cost nature of the business,” said Suprio Banerjee, Vice President & Sector Head – Corporate Ratings, ICRA Limited.
ICRA said it has decided to revise the outlook for the Indian aviation industry to stable from negative due to the fast-paced recovery in domestic passenger traffic in FY2023 and the expected continuation of the same in FY2024.
Moreover, the industry has witnessed improved pricing power, as reflected in the healthier yields and thus the revenue per available seat kilometer- cost per available seat kilometer (RASK-CASK) spread of the airlines, ICRA said.
The same is expected to continue, given the sequential decline in aviation turbine fuel (ATF) prices from the peak of June 2022 and the anticipation of relatively stable foreign exchange rates, it added.
The Indian aviation industry is estimated to report a net loss of Rs 11,000-13,000 crore in the current financial year due to elevated ATF prices coupled with the depreciation in the value of the Indian rupee against the US dollar.
During the fiscal 2021-22, the net loss of the Indian aviation industry stood at Rs 23,500 crore.
“The net loss is further expected to compress to Rs 5,000-7,000 crore in FY2024, as airlines continue to witness healthy passenger traffic growth and improve their RASK-CASK spread through better pricing discipline,” Banerjee said.
International passenger traffic for Indian carriers is estimated to grow by 10-15 per cent in FY2024, post the 125-130 per cent expansion in FY2023. It is likely to surpass the pre-Covid levels in FY2023 itself while exceeding the peak of FY2019 in FY2024.
Despite a healthy recovery in passenger traffic, the domestic aviation industry continues to face challenges on account of elevated ATF prices and depreciation of the value of rupee. Both these factors have major bearing on the airlines’ cost structure.
Fuel costs account for 30-40 per cent of the airlines’ expenses, while 35-50 per cent of the airlines’ operating expenses – including aircraft lease payments, fuel expenses, and a significant portion of aircraft and engine maintenance expenses – are denominated in the US dollar terms.