Revising its outlook for the Indian aviation industry to ‘stable’ from ‘negative’, ratings agency ICRA has said domestic passenger traffic will see 8-13% YoY growth in FY2024 and surpass pre-covid levels.

Amid the fast-paced recovery seen in the domestic passenger traffic in FY2023, there is the expectation that it’ll continue the same in FY2024. “Over the medium term, the 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,” says the latest report. With the gradual recovery, the aviation industry has seen improved pricing power, as reflected in the healthier yields, says the report.

“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,” says the report.

ICRA has said during the current fiscal so far, the domestic passenger traffic, at 111 million, saw a YoY increase of 66.2% and trailed the pre-Covid levels (for 10 months of FY2020) by only 8.3%.

Further, the report finds the international passenger traffic for Indian carriers is on a growth trajectory since scheduled international flights resumed on March 27, 2022; it lowered only by 2.4% in 9M FY2023 when compared to pre-Covid levels.

In its outlook for international traffic for Indian carriers, ICRA estimates 10-15% YoY growth 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.”

Suprio Banerjee, vice-president & sector head, corporate ratings, ICRA, said the industry is estimated to report a net loss of ₹1,100-1,300 crore in FY2023 due to elevated ATF prices twined with the depreciation of the rupee against the US$. “However, the same is much lower than the net loss of ₹23,500 crore in FY2022 and ICRA’s earlier estimated net loss of ₹1,500-1,700 crore in FY2023, primarily driven by the improved ability of the airlines to shore up their yields without impacting the demand,” he added.

The ratings agency thinks the airline’s net loss is further expected to compress to ₹500-700 crore in FY2024, as airlines continue to witness healthy passenger traffic growth and improve their RASK-CASK spread through better pricing discipline.”

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”.

Notably, 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.

In ICRA’s view, capacity addition in FY2023 will be limited to around 10% of the FY2022 fleet of airlines, which was close to around 700 aircraft. “As per the indicative numbers, the total fleet deliveries pending are close to 1,100, which is 1.5x the fleet currently under operation.”

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