Aviation industry’s net loss to decrease substantially, earnings recovery remains modest, ET TravelWorld
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Aviation industry’s net loss to decrease substantially, earnings recovery remains modest, ET TravelWorld

The Indian aviation industry is experiencing impressive growth, as revealed by the latest statistics on monthly domestic passenger traffic data for August 2023, released by leading ratings agency ICRA. The current trend also suggests that the net loss is expected to decrease substantially to INR 30-50 billion in FY2024, supported by healthy passenger traffic growth and pricing discipline after industry consolidation.

For August 2023, the domestic air passenger traffic reached approximately 124.8 lakh, marking a notable 3.2 per cent increase compared to July 2023, when it stood at around 121 lakh. Even more impressive is the year-on-year (YoY) growth, which surged by approximately 23 per cent in comparison to August 2022 when it was around 101 lakh.

It is also noteworthy that the August 2023 figures are about 6 per cent higher than the pre-Covid levels witnessed in August 2019, which stood at around 118 lakh.

The aviation industry’s robust performance extends to the cumulative data for 5M FY2024 (April-August 2023), with domestic air passenger traffic hitting around 631.77 lakh. This reflects a significant YoY growth of 20 per cent compared to 5M FY2023 (April-August 2022), which recorded passenger traffic of 525.59 lakh. Moreover, this 5M FY2024 data is approximately 7 per cent higher than the pre-Covid levels seen in the same period in 2019, which was 589.03 lakh.

In terms of capacity deployment, the airlines exhibited a promising trend in August 2023, with a capacity increase of around 10 per cent compared to August 2022. However, it was slightly lower by 1 per cent when compared to the pre-Covid levels of August 2019.

The data also indicates that the domestic aviation industry maintained a robust passenger load factor (PLF) of approximately 89 per cent in August 2023. This PLF is significantly higher than the 79 per cent recorded per cent in August 2022 and even surpasses the pre-Covid levels of August 2019, which stood at approximately 85 per cent. Despite these impressive numbers, the industry continues to grapple with challenges, particularly related to elevated aviation turbine fuel (ATF) prices and the depreciation of the Indian Rupee against the US Dollar compared to pre-Covid levels. These factors significantly impact the cost structure of airlines. In FY2023, the average ATF prices stood at INR 121,013/KL, reflecting the elevated costs compared to INR 64,715/KL in FY2020. Fuel expenses account for around 30-40 per cent of airlines’ expenses, and a significant portion of operating expenses is denominated in US Dollars.

ICRA maintains stable outlook on Indian aviation industry, anticipates clear skies in FY24

Despite the recovery, the movement of yields remains a monitorable amidst elevated ATF prices and depreciation of the INR vis-à-vis the USD. Fuel accounts for ~30-40 per cent of the airlines’ expenses, while ~35-50 per cent of the airlines’ operating expenses are denominated in USD terms. Some airlines also have foreign currency debt.

The industry is gradually recovering, but the pace of earnings recovery remains modest due to its high fixed-cost nature. In FY2023, the industry reported a net loss of approximately INR 170-175 billion, attributed to elevated ATF prices and Rupee depreciation. This loss is, however, significantly lower than the net loss of approximately INR 217 billion in FY2022.

In this scenario, select airlines are facing financial distress and stretched liquidity issues. Some airlines have adequate liquidity and/or strong parental support, which bolsters their credit profile. However, for others, credit metrics and liquidity profiles remain stressed.

Supply chain disruptions have led to the grounding of certain aircraft by some airlines. Go First, for instance, was forced to ground half of its fleet due to faulty engines supplied by Pratt & Whitney. Consequently, the airline started defaulting on payments to vendors and aircraft lessors. The airline filed for voluntary insolvency with the National Company Law Tribunal (NCLT), leading to a moratorium on the airline’s assets and prohibiting lessors from repossessing their aircraft. However, the matter is under litigation, with lessors appealing to the NCLAT.

Despite these challenges, the Indian aviation industry maintains a stable outlook, driven by the robust recovery in domestic passenger traffic in FY2023 and expectations of this trend continuing into FY2024. Improved pricing power, reflected in enhanced yields and revenue per available seat-kilometre – cost per available seat-kilometer (RASK-CASK) spreads, is expected to persist. Additionally, the decline in aviation turbine fuel (ATF) prices since April 2023 and relatively stable foreign exchange rates contribute to the industry’s stability.

The airlines’ efforts to implement fare hikes in line with input cost increases will be crucial for expanding profitability margins in the coming months.

  • Published On Sep 13, 2023 at 02:29 PM IST

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