Investment, Information and Credit Rating Agency (ICRA) has revised its outlook for Indian aviation from negative to stable taking into account the recovery in domestic passenger traffic. Going ahead the agency expects domestic-passenger traffic to reach 145-150 million in FY24, way beyond the pre-pandemic levels. ICRA expects this traffic to grow at 8-13% in FY24, after the 55-60% growth in FY23.
Apart from the healthy growth in demand, another reason for the change in outlook is industry’s improved pricing power.
Suprio Banerjee, vice president & sector head of corporate ratings at ICRA, said: “The pace of recovery in industry earnings will be gradual owing to the high fixed cost nature of the business. The industry is estimated to report a net loss of INR 110-130 bn in FY2023 due to elevated ATF prices twined with the depreciation of the INR against the USD. However, the same is much lower than the net loss of INR 235 bn in FY2022 and Icra's earlier estimated net loss of INR 150-170 bn in FY2023, primarily driven by the improved ability of the airlines to shore up their yields without impacting the demand. The net loss is further expected to compress to INR 50-70 billion in FY2024, as airlines continue to witness healthy passenger traffic growth and improve their RASK-CASK spread through better pricing discipline.”
According to ICRA, the industry’s improved pricing power is reflected in the healthier yields and thus the revenue per available seat kilometre-cost per available seat kilometre (RASK-CASK) spread of the airlines. ICRA expects the improved yields too to continue, given the sequential decline in aviation turbine fuel (ATF) prices from the peak of June 2022 and the anticipation of relatively stable foreign exchange rates.
International passenger traffic for Indian carriers is on a growth trajectory with the resumption of scheduled international operations since March 27, 2022, and was lower only by 2.4% in the first nine months of this fiscal compared to pre-Covid levels. According to ICRA, the international passenger traffic for Indian carriers to witness a year-on-year growth of 10-15% next fiscal after the 125-130% expansion in FY23.