Domestic air traffic to rise by 55% in 2021-22, long road ahead for recovery: ICRA

An expected 50-55 per cent rise in domestic air passenger traffic in 2021-22 but much below pre-Covid-19 levels may not bring down the losses of the Indian aviation industry as analyst firm ICRA has predicted that the net loss may be around Rs 25,000 crore to Rs 26,000 crore.

However, the situation could ease in the next fiscal with the possible opening of international operations and easing of Covid-19 situation.

According to ICRA, the domestic air passenger traffic is likely to witness a strong Year-on-Year growth of 50-55 per cent in 2021-22 supported by the fast pace of Covid-19 vaccination and gradual relaxations in restrictions by the regulatory authorities. However, this recovery will be on a much lower base of 2020-21.

This will also be significantly lower than pre-Covid levels, given the recovery to pre-Covid levels is expected by 2023-24, it said.

"In the near term, the balance sheets of Indian carriers will remain stressed until the carriers are able to reduce their debt burden through a combination of improvement in operating performance and/or through equity infusion," it said.

ICRA said it continues to maintain its "Negative credit outlook" on the Indian aviation industry, given the elevated ATF prices, overhang of the recent Covid wave and continued suspension of scheduled international travel" even as debt reduction in 2021-22 was largely driven by "notable reduction" of the debt level in Air India Ltd before its stake sale.

ICRA Vice President and Sector Head Suprio Banerjee said the recovery in passenger traffic remained gradual in the current fiscal due to the onset of the second wave of the pandemic and the later emergence of the Omicron variant.

The rising aviation turbine fuel (ATF) prices and continued fare caps continue to pose a major challenge for the profitability of the airlines, he said, referring to the ICRA estimate of a net loss of Rs 25,000 crore to Rs 26,000 crore.

"Coupled with lower debt levels, estimated to reduce to Rs 1000 billion (including lease liabilities) in 2021-22 driven by notable reduction in debt levels in Air India Ltd before the stake sale, the net losses are likely to reduce to Rs 14,000 crore to Rs 16,000 crore in 2022-23. This is even though airlines will have to pay much higher fuel bills in FY2023 owing to sharp rise in crude oil prices amidst rising geo-political development surrounding the Russia-Ukraine conflict," Banerjee said.

It is estimated that the industry will require an additional funding in the range of Rs 20,000 crore-22,000 crore over 2021-22 to 2023-24, he said.

According to ICRA, the recovery in domestic air passenger traffic is expected to be driven by the "pent up demand" in the leisure travel segment and gradual recovery in business travel as corporate offices move towards the resumption phase, post the third wave.

"The impact of the pandemic has been more profound and long lasting on international travel, compared to domestic travel, with scheduled international operations still under suspension," it said.

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