Indian Airlines To Potentially Narrow Losses To Rs 3,000-5,000 Crore In FY24: ICRA

Regarding the outlook for the industry, ICRA maintained a stable view in light of robust growth in passenger traffic, and improved yields among others

The Indian airline industry is likely to narrow its net losses to Rs 3,000-5,000 crore in the current financial year from an estimated Rs 17,000-17,500 crore in the previous fiscal year, owing to better yields and stable cost environment, credit ratings agency ICRA said on Tuesday. 

The ratings agency also projected the domestic air passenger traffic to grow by 8-13 per cent each in the 2023-24 and 2024-25 fiscal years. Regarding the outlook for the industry, ICRA maintained a stable view in light of robust growth in passenger traffic, and improved yields among others, reported PTI. Elaborating about the quick recovery in the previous fiscal year, the agency said that it expects domestic air passenger traffic to grow to 150-155 million in the current fiscal year, and surpass the pre-pandemic levels of 141.2 million in FY20. 

It added that the aviation industry’s net loss is estimated to narrow to Rs 30-50 billion in FY24, from a projected Rs 170-175 billion in FY23. Suprio Banerjee, vice president, and sector head, corporate ratings, ICRA Ltd, said, “The air passenger traffic momentum witnessed in the current fiscal is expected to continue in FY2025, though further expansion in yields from the current levels may be limited. Thus, the industry is estimated to report a similar net loss of ~Rs. 30-50 billion in FY2025 as well.” 

The agency added that the momentum of growth is likely to continue in 2024-25 fiscal year, helped by an increase in demand for air travel and improving airport infrastructure. Notably, during the first eight months of FY24, domestic air passenger traffic remained at 100.7 million, logging a growth of 17 per cent on a year-on-year (YoY) basis, and 5 per cent against the pre-pandemic levels. 

The international passenger traffic for Indian airlines stood at 23.9 million in FY23, bypassing the pre-pandemic levels, however, it remained below the peak level of 25.9 million logged in FY19. ICRA noted that it is estimated to bypass this figure in FY24 at 25-27 million passengers.

In terms of capacity addition, the agency stated that the industry would continue with the total pending aircraft deliveries of around 1,500, however, the supply chain disruptions at the aircraft original equipment manufacturers (OEMs) could make the addition gradual. ICRA said that the demand-supply balance is expected to be maintained in the medium term. It added that a major chunk of fleet addition for the airlines would also translate into the expansion of international operations. Notably, in FY23, Indian carriers accounted for 42 per cent of international traffic (to and from India). This provides sufficient potential for Indian airlines to capture overseas traffic over the medium term.

However, ICRA said, that despite a healthy recovery in passenger traffic and improved yields, the latter would be observed due to surging ATF prices and depreciation of the Indian currency against the American dollar as both these factors impact the airlines’ cost structure majorly. 

Notably, the average aviation turbine fuel (ATF) prices remained at Rs 103,189/kl in FY24, higher by 59 per cent against an average of Rs 64,715/kl during FY20, and lower by 17 per cent against Rs 121,013/kl in FY23. 

Banerjee stated that fuel contributes to 30-40 per cent of the expenses for the airlines, while about 35-50 per cent of operating costs include aircraft lease payments, fuel expenses, and a key portion of aircraft and engine maintenance costs are denominated in the US dollar terms. 

“More recently, the Indian aviation industry has been facing significant supply chain issues, resulting in around 20-22 per cent of the total fleet being on the ground currently. The recent issue related to powder-coating related concerns in engines manufactured by Pratt & Whitney (P&W) is expected to lead to additional aircraft to be grounded by Q4 FY2024 of this fiscal 'amounting to approximately 22-24 per cent of the industry capacity,” Banerjee added. 

He stressed that this would lead to increased operational expenses due to grounding costs, the surge in lease rentals arising from extra aircraft leased to manage the grounded capacity, along high lease rates and reduced fuel efficiency. This is set to negatively impact the airline’s cost structure and overall cash flow generation.