Wednesday, October 4, 2023

ICRA Report Shows Stable Outlook For Indian Aviation Industry

By Staff Correspondent

ICRA, an Indian ratings agency, has revised its outlook for the country’s aviation industry to “stable” from “negative.” This comes as a result of a fast-paced recovery in domestic passenger traffic during the current financial year, with expectations that this trend will continue into the next financial year. Improved pricing power has led to healthier yields, resulting in a better Revenue Per Available Seat Kilometer (RASK)-Cost Per Available Seat Kilometer (CASK) spread for airlines, according to ICRA.

The ratings agency believes this trend will continue, especially 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. The Indian aviation industry has faced numerous challenges over the past two years due to the pandemic, which severely impacted air travel demand. However, it appears that Indian airlines and airport operators are starting to swing back to profit.

State-run Airports Authority of India (AAI) expects to report a net profit of ₹1,900 crore for FY23, mirroring the success of airlines in the third quarter. IndiGo, India’s largest airline by market share, has announced a record profit, and privately-held Vistara has broken even for the first time since its inception. SpiceJet Ltd also unexpectedly reported a fourfold jump in net profit to ₹106.8 crore.

ICRA projects domestic passenger traffic growth at 8-13% in FY24, with expectations to reach 145-150 million, much higher than pre-Covid levels. The domestic air traffic in calendar year 2019 stood at 144.2 million passengers. Additionally, the ratings agency estimates international passenger traffic for Indian carriers to witness a year-on-year growth of 10-15% in FY24. According to ICRA, international passenger traffic for Indian carriers is likely to surpass pre-Covid levels in FY2023 while exceeding the peak of FY19 in FY24.

However, Mr. Suprio Banerjee, Vice President & Sector Head – Corporate Ratings, ICRA Limited, warns that the pace of recovery in industry earnings will be gradual due to the high fixed cost nature of the business. The industry is expected to report a net loss of Rs. 110-130 billion (₹11,000-13,000 crore) in FY23 due to elevated ATF prices, twinned with the depreciation of the INR against the US$. Nonetheless, this is much lower than the net loss of Rs. 235 billion (₹23500 crore) in FY22 and ICRA’s earlier estimated net loss of Rs. 150-170 billion (₹15,000-17,000 crore) in FY23.

Mr. Banerjee further states that “The net loss is further expected to compress to Rs. 50-70 billion (₹5000-7000 crore) in FY24, as airlines continue to witness healthy passenger traffic growth and improve their RASK-CASK spread through better pricing discipline.” Despite the competitive landscape in the domestic aviation industry changing with the foray of new entrants, likely re-initiation of operations by Jet Airways, and consolidation of Air India, Air Asia India, and Vistara, ICRA estimates the capacity addition in FY23 to be limited to around 10% of the FY22 fleet of airlines, which was close to around 700 aircraft.

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