New Delhi, Mar 6 (Agency) ICRA on Monday revised the outlook for the Indian aviation industry to stable from negative, given the fast-paced recovery in domestic passenger traffic in FY2023 and the expected continuation of the same in FY2024. “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.
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,” the ratings agency said. ICRA has projected domestic passenger traffic growth at 8-13% in FY2024, post the 55-60% expansion in FY2023, to reach 145-150 million, which is much higher than the pre-Covid levels. During 10M FY2023, domestic passenger traffic, at 111 million, witnessed a YoY increase of 66.2% and trailed the pre-Covid levels (10M FY2020) by only 8.3%, it said. The ICRA said international passenger traffic for Indian carriers is on a growth trajectory with the resumption of scheduled international operations since March 27, 2022, and was lower only by 2.4% in 9M FY2023 when compared to pre-Covid levels. The agency said it has estimated international passenger traffic for Indian carriers to witness a YoY growth of 10-15% in FY2024, post the 125-130% expansion in FY2023. The international passenger traffic for Indian carriers is likely to surpass the pre-Covid levels in FY2023 itself while exceeding the peak of FY2019 in FY2024. Over the medium term, growth in the Indian airline sector will be driven by improving airport infrastructure in addition to the Government’s concerted efforts to promote regional tourism, it said.
Suprio Banerjee, Vice President & Sector Head – Corporate Ratings, ICRA Limited, said, “The pace of recovery in industry earnings will be gradual owing to the high fixed cost nature of the business. The industry is estimated to report a net loss of Rs 110-130 billion in FY2023 due to elevated ATF prices twined with the depreciation of the INR against the US$. However, the same is much lower than the net loss of Rs 235 billion in FY2022 and ICRA’s earlier estimated net loss of Rs 150-170 billion in FY2023, primarily driven by the improved ability of the airlines to shore up their yields without impacting the demand.” “The net loss is further expected to compress to Rs. 50-70 billion in FY2024, as airlines continue to witness healthy passenger traffic growth and improve their RASK-CASK spread through better pricing discipline,” he said. “Despite a healthy recovery in passenger traffic, the domestic aviation industry continues to face challenges on account of elevated ATF prices and depreciation of the INR vis-à-vis the US$, both of which have a major bearing on the airlines’ cost structure.
Fuel costs account for 30-40% of the airlines’ expenses, while 35-50% of the airlines’ operating expenses – including aircraft lease payments, fuel expenses, and a significant portion of aircraft and engine maintenance expenses – are denominated in US$ terms. Further, some airlines have foreign currency debt,” he said. “While domestic airlines also have a partial natural hedge to the extent of earnings from their international operations, overall, they have net payables in foreign currency. However, airlines have been able to increase yields (YoY increase of around 35-40% during 9M FY2023) to pass on the same to a large extent without impacting demand,” he said. The competitive landscape in the domestic aviation industry is set to change with the foray of new entrants, likely re-initiation of operations by Jet Airways, and consolidation of Air India, Air Asia India, and Vistara. The agency said capacity addition in FY2023 will be limited to around 10% of the FY2022 fleet of airlines, which was close to around 700 aircraft. “There are large aircraft purchase orders announced by various players in the industry. As per the indicative numbers, the total fleet deliveries pending are close to 1,100, which is 1.5x the fleet currently under operation. However, these will be delivered over the medium to long term, and a large part of these will be towards the replacement of old aircraft with new fuel-efficient ones,” Banerjee said. “In addition, supply-chain challenges being faced by aircraft manufacturers are likely to constrain their production schedules, which is also reflected by the grounding of a certain proportion of the airline’s fleet. Accordingly, ICRA believes that capacity addition for the industry will only be gradual”, he added.