Despite the recovery in passenger traffic, the rating agency, ICRA expects the Indian aviation industry to report a loss between INR 150-170 billion in 2022-23 due to high ATF prices and a depreciating rupee.
Domestic air passenger traffic in India is likely to grow 52-54% on the year and is likely to reach pre-COVID levels in 2022-23, rating agency ICRA said in its report.
The rating agency said that domestic airlines in India are still reporting an unfavourable spread in their revenue per available seat kilometre–cost per available seat kilometre due to the significant surge in costs and the limited ability of the airlines to pass on the same to the customers.
In the current fiscal, the cost headwinds increased airfares, with domestic yield in the first quarter expected to have increased by 25-30% over pre-Covid levels.
ICRA said that despite the government removing fare caps from August 31, airlines in India will struggle to increase the costs of tickets in the country due to very high competition.
“Despite an expected improvement in passenger traffic, the industry is estimated to report a net loss of INR 150-170 billion in FY2023 (as against an estimated net loss of INR 230 billion in FY2022), due to elevated aviation turbine fuel (ATF) prices and the recent depreciation of INR against the US dollar, both of which have a major bearing on the cost structure of airlines.”Suprio Banerjee, Vice President & Sector Head, ICRA
While the civil aviation ministry has discontinued the fare restrictions, a sharp hike in airfares will be deterred by the intense competition and airlines’ endeavours to maintain and/or expand their market shares.
However, the rating agency expects that the international passenger traffic for Indian carriers is likely to reach or marginally surpass pre-Covid levels in FY2023.
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In the June quarter, IndiGo and SpiceJet booked losses of INR 1,064 crore and INR 789 crore, respectively, primarily because of a weak rupee and costlier ATF.
In Q1 FY23, domestic passenger traffic was higher by 2.04 times at 32.5 million YoY. It fell short of the pre-Covid level (Q1 FY20) by about 7%. With normalcy back, domestic passenger traffic is expected to grow 52-54 per cent YoY in FY23, Icra said. Domestic traffic is expected to touch pre-Covid levels by FY24.