Indian aviation is seeing a steady rise in passenger traffic and will hit the pre-COVID levels soon, despite strong tailwinds, Investment Information and Credit Rating Agency of India (ICRA) has forecasted a loss of INR 15,000 to INR 17,000 crore in financial year 2023. ICRA recently published its half year report in which said the main reasons for loss continue to be high Aviation Turbine Fuel (ATF) price, increasing competition and international borrowing.
Suprio Banerjee, Vice President & Sector Head, ICRA said: “A fast-paced recovery in domestic passenger traffic is expected in FY23, aided by improving demand in both leisure and business travel segments.”
ICRA expects the recovery in domestic passenger traffic to pre-Covid levels by FY24. Further, with the resumption of scheduled international air operations for Indian carriers since March 27, and the reversion to bilaterally agreed capacity entitlements, the international passenger traffic for Indian carriers is on a strong growth trajectory due to pent up demand and is expected to reach or marginally surpass pre-Covid levels in FY23.
“Despite an expected improvement in passenger traffic, the industry is estimated to report a net loss of about INR 15,000-17,000 crore this fiscal (as against an estimated net loss of INR 230 crore in FY22), due to elevated ATF prices and the recent depreciation of INR compared to the dollar, both of which have a major bearing on the cost structure of airlines,” added Banerjee.
The expected re-launch of Jet Airways and the new entrant, low-cost carrier (LCC) Akasa Air, is expected to intensify the competition for Indian carriers.
Banerjee further went on to explain: “In FY23, the cost headwinds resulted in an increase in air fares, with domestic yields in Q1 expected to have increased by 25-30% over pre-Covid levels. While the Indian civil aviation ministry has discontinued the fare restrictions with effect from August 31, 2022 a sharp hike in airfares will be deterred by the intense competition and airlines’ endeavours to maintain and/or expand their market shares.”
With the decline in the industry debt levels towards the end of FY22 on account of notable reduction in debt of Air India before its sale, the interest burden in FY23 is expected to be lower. The debt levels for the industry are expected to be at around INR 1-lakh crore including lease liabilities as on March 31, 2023.
The report said the reduction in COVID-19 cases is a booster for the industry. On a year-on-year basis, the domestic passenger traffic was higher by 2.04 times at 32.5 million in the first quarter of FY23, but it was still short of around 7% compared to pre-COVID level. As normalcy slowly returns to the aviation industry the domestic passenger traffic is expected to witness 52-54% year-on-year growth in FY23, ICRA added.