Wednesday, May 29, 2024

Indian Aviation Bumps Up With Near 19% Passenger Surge In June Amidst Industry Challenges

By Staff Correspondent

India’s aviation industry is on a positive trajectory as ICRA maintains a stable outlook, thanks to the robust recovery in domestic passenger traffic during FY2023 that’s predicted to continue into FY2024. A marked improvement in pricing power has amplified yields and stimulated a favourable revenue per available seat kilometre – cost per available seat kilometre (RASK-CASK) spread for airlines. This trend is projected to endure, driven by five consecutive months of declining aviation turbine fuel (ATF) prices and relatively stable foreign exchange rates.

According to Thursday’s data from the Directorate General of Civil Aviation (DGCA), June saw an 18.78% surge in domestic air travel, equating to roughly 12.5 million passengers – an increase compared to the same period last year. However, a 5% decline was observed in June 2023 from the previous month, though the figures were 4% higher than pre-pandemic levels of June 2019.

June also witnessed an uptick in market share for airlines such as IndiGo, Air India, Vistara, AirAsia India, and Akasa Air, thanks to the grounding of budget carrier Go First. On the contrary, SpiceJet’s market share kept dwindling, down to 4.4% last month from 7.3% in January.

Air India and AirAsia India (now rebranded as AIX Connect), both part of Tata Group airlines, reported substantial passenger numbers for June. Additionally, Vistara, a joint venture with Singapore Airlines, recorded an 8.1% market share, while Akasa Air achieved 4.9%. However, SpiceJet’s market share took a hit, falling to 4.4%.

Suprio Banerjee of ICRA Limited revealed that the first quarter of FY2024 saw a 19% YoY increase in domestic air passenger traffic, which was approximately 10% higher than pre-pandemic levels. However, June 2023’s capacity deployment remained 4.8% lower than pre-pandemic levels, despite being 1% higher than June 2022.

Notwithstanding the strong recovery, the Indian aviation industry still grapples with mounting ATF prices and the depreciation of the Indian Rupee against the US Dollar. These factors dramatically affect the airlines’ cost structure, with fuel expenses amounting to nearly 30-40% of total costs.

In FY2023, the Indian aviation industry incurred a net loss of Rs. 110-130 billion, primarily due to soaring ATF prices and rupee depreciation. However, it’s a significant reduction from Rs. 235 billion in FY2022, thanks to improved pricing capabilities. The net loss for FY2024 is forecasted to decrease further to Rs. 50-70 billion.

While some airlines can mitigate near-term challenges through sufficient liquidity or financial support from parent companies, others grapple with financial distress. One such airline is Go Airlines, which recently faced issues with supply chains, resulting in the grounding of half its fleet due to defective engines, leading to defaulting on payments and eventually filing for voluntary insolvency.

Overall, while the aviation industry remains vulnerable to ongoing challenges such as supply chain disruptions and escalating costs, its recovery trajectory, backed by strong passenger numbers and improved pricing power, paints a hopeful picture for the future

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