The Indian airline industry is anticipated to significantly reduce its net losses to Rs 3,000-5,000 crore in the current fiscal year, down from an estimated Rs 17,000-17,500 crore in FY2023. This positive outlook is attributed to improved yields and a stable cost environment, as stated by credit ratings agency ICRA.
ICRA also projects a growth of 8-13 per cent in domestic air passenger traffic for both FY2024 and FY2025. The agency maintains a stable outlook for the industry, considering healthy passenger traffic growth, improved yields, and a stable cost environment.
The momentum in air passenger traffic growth is expected to persist in FY2025, with a similar year-on-year growth, driven by increasing demand for air travel and enhanced airport infrastructure.
During the first eight months of the current fiscal year, domestic air passenger traffic recorded a 17 per cent year-on-year growth, reaching 100.7 million, which is 5 per cent higher than pre-Covid levels (8M FY2020).
International passenger traffic for Indian carriers in FY2023 exceeded pre-Covid levels, reaching 23.9 million, with an estimated 25-27 million passengers expected in the current fiscal year.
What is RASK-CASK factor?
ICRA notes that airlines experienced improved pricing power, evident in enhanced yields and the spread between revenue per available seat kilometre and cost per available seat kilometre (RASK-CASK).
Although there will be ongoing capacity addition with around 1,500 pending aircraft deliveries, supply chain issues may result in gradual additions. The growth in passenger traffic is expected to balance the demand-supply equation in the medium term.
ICRA emphasises the potential for Indian carriers to expand in international traffic, as evidenced by their 42 per cent share in FY2023.
ICRA highlights the importance of monitoring yield movements
Despite a healthy recovery in passenger traffic and improved yields, ICRA highlights the importance of monitoring yield movements amid elevated aviation turbine fuel (ATF) prices and the depreciation of the Indian Rupee against the US Dollar compared to pre-Covid levels. Fuel costs account for 30-40 per cent of airlines’ expenses, and a significant portion of operating expenses is denominated in US dollars.
The industry currently faces supply chain issues, with around 20-22 per cent of the total fleet grounded. Issues related to Pratt & Whitney (P&W) engines are expected to lead to additional aircraft being grounded by Q4 FY2024, amounting to approximately 22-24 per cent of the industry’s capacity. This will result in higher operating expenses, increased lease rentals, and lower fuel efficiency, impacting the overall cash flow generation for airlines.