Shillong, September 7: Credit rating agency ICRA predicts that domestic air passenger traffic in India will experience substantial growth, ranging from 8-13 percent in FY24, reaching an estimated 150-155 million passengers.
As per IANS, ICRA maintains a stable outlook for the Indian aviation industry, citing ongoing recovery in both domestic and international air passenger traffic in FY2024, along with improved pricing power for carriers.
The agency’s estimates indicate that domestic air passenger traffic in FY2024 is expected to grow by 8-13 percent, surpassing pre-COVID levels and reaching 150-155 million passengers, exceeding the 141.2 million recorded in FY2020.
During the initial five months of FY24, domestic air passenger traffic reached 63.2 million, marking a YoY growth of 20 percent from 52.6 million in the same period in FY23. This figure is seven percent higher than the pre-COVID levels of 58.9 million (5M FY2020), according to ICRA.
Furthermore, Indian carriers’ international passenger traffic exceeded pre-COVID levels in FY23, although it remained below the peak levels of 25.9 million in FY19. ICRA anticipates that this level will be surpassed in the current fiscal year, with an estimated 25-27 million passengers.
ICRA also highlights that the aviation industry has seen improved pricing power, reflected in enhanced yields and the revenue per available seat kilometre – cost per available seat kilometre (RASK-CASK) spread of the airlines. This trend is expected to continue, driven by a year-on-year decline in aviation turbine fuel (ATF) prices since April 2023, despite recent fluctuations, and relatively stable foreign exchange rates.
The fast-paced recovery of air passenger traffic in FY23, combined with the continuation of this trend in the current fiscal year and improved pricing power, has led to a positive RASK-CASK spread for some Indian airlines since Q3 FY23. Consequently, the industry is projected to report significantly reduced net losses, estimated at approximately Rs. 30-50 billion in FY2024 compared to the estimated Rs. 170-175 billion in FY2023, according to Suprio Banerjee, Vice President & Sector Head-Corporate Ratings.
Banerjee notes that in FY23, the industry’s capacity addition was limited to around six percent of the FY22 fleet, totaling about 700 aircraft. However, various players in the industry have announced large aircraft purchase orders, with an indicative number of pending aircraft deliveries close to 1,500, more than double the current operational fleet.
Nevertheless, a significant portion of these orders involves replacing old aircraft with new, fuel-efficient ones, and capacity addition is expected to be gradual.
Banerjee adds, “Aircraft manufacturers are facing supply-chain challenges, resulting in the grounding of aircraft by some airlines. This, in turn, impacts the overall capacities for airlines, and thus their cash flow generation, given the high fixed-cost nature of the business.”
While some airlines have sufficient liquidity or financial support from strong parent companies, supporting their credit profiles, others will continue to face stress in their credit metrics and liquidity profiles in the near term, despite some improvements relative to the last few years.