Domestic Air Traffic Expected To Rise 7-10% In FY25: ICRA

Kinjal Shah, Senior Vice President and Co-Group Head at ICRA indicated that the industry is expected to report a net loss of Rs 20-30 billion in FY2025 and FY2026

Domestic air traffic is expected to grow 7-10 per cent in the current fiscal year, reaching 164-170 million passengers, while the aviation industry is projected to incur losses of Rs 2,000-3,000 crore, according to a report from rating agency ICRA. In the first half of 2024-25, domestic air passenger traffic stood at 79.3 million, reflecting a 5.3 per cent year-on-year (YoY) growth, though this was partly impacted by a severe heatwave and other weather-related disruptions. Meanwhile, international passenger traffic for Indian carriers grew 16.2 per cent in the same period.

On Tuesday, ICRA forecasted a 7-10 per cent increase in domestic air traffic for FY2025. Despite ongoing challenges, the agency maintained a 'stable' outlook for the Indian aviation industry, driven by continued growth in domestic and international air travel.

Kinjal Shah, Senior Vice President and Co-Group Head at Icra indicated that the industry is expected to report a net loss of Rs 20-30 billion in FY2025 and FY2026, a significant improvement compared to past losses, supported by airlines’ stronger pricing power.

"The spread between revenue per available seat kilometre and cost per available seat kilometre saw some moderation in H1 FY2025 over FY2024 due to higher fuel prices and overall increased costs amid grounding of aircraft, while yields moderated marginally as airlines strove to maintain adequate passenger load factors. Nonetheless, the same is expected to pick up in H2 FY2025, amid healthy passenger traffic," Shah said.

Airlines' cost structures are heavily influenced by two key factors: Aviation Turbine Fuel (ATF) prices and fluctuations in the INR-USD exchange rate.

Icra noted that average ATF prices dropped by 6.8 per cent YoY to Rs 96,192 per kiloliter in the first eight months of FY2025, although they remain above the pre-Covid levels of Rs 65,261 per kiloliter in FY2020. Fuel costs typically account for 30-40 per cent of an airline's expenses, with 35-50 per cent of operating costs—including aircraft lease payments, fuel, and maintenance—denominated in US dollars.

"Some airlines also have foreign currency debt. While the 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," Icra said in its release.