Domestic Airlines Industry Expected To Fly Back Into Profitability Next Fiscal: Crisil

Domestic airlines industry is expected to fly back into profitability next fiscal, for the first time since the outbreak of Covid, amid easing cost pressures and reduction in leverage to support credit profiles, a report said on Wednesday. As per the report by credit rating agency Crisil, the industry is also likely to pare its net loss by as much as 75-80 per cent year-on-year to Rs 3,500-4,500 crore this fiscal, compared with around Rs 17,500 crore last fiscal.

Strong recovery in passenger traffic and easing cost pressures are supporting this turnaround in operating performance of airlines, Crisil said. The projections are based on Crisil Ratings analysis of three airlines that account for around 75 per cent of domestic air traffic.

Domestic and international passenger traffic recovered to 90 per cent and 98 per cent, respectively, in the nine months through December this fiscal, compared with the corresponding period of fiscal 2020 (pre-pandemic). Business and leisure travel rebounded strongly even as international scheduled services resumed, it said and added that the festival season has accelerated recovery in the second half.

This pace is likely to be maintained next fiscal, as the Indian economy remains resilient in the face of global headwinds, Crisil Ratings said. The removal of fare caps is also helping airlines pass on cost increases, it added. "Next fiscal, we expect passenger traffic to cross the pre-pandemic level and pricing to remain higher by 20-25 per cent over those levels. Consequently, airlines are expected to clock 25-30 per cent revenue growth next fiscal vis-a-vis pre-pandemic," said Gautam Shahi, Director, Crisil Ratings.

That along with expected moderation in average aviation turbine fuel prices will drive a significant turnaround in operational performance of airlines, enabling them to become profitable next fiscal, Shahi noted. Profitability will also be aided by lower interest costs, driven by debt reduction owing to privatisation of a large airline in the last quarter of previous fiscal, it said.

Moreover, better operating performance and expected equity infusions would keep airlines' reliance on debt (excluding lease liabilities) limited over the near-to-medium term. Kshitij Jain, Associate Director, Crisil Ratings, said: "The aviation sector is also likely to raise equity of Rs 8,000-10,000 crore over the next two fiscals, which will be utilised towards increasing fleet size and revamping the existing fleet."

This will provide a much-needed boost to the capital structure, he said. Consequently, dependence on incremental debt (excluding lease liabilities) for airlines would remain limited over the near-to-medium term, as major part of recent large fleet purchase orders by airlines are expected to be received from fiscal 2026 onwards, and thus support their credit profiles, according to Jain.

The ratings agency, however, noted that timely infusion of equity, debt contracted for capex towards fleet expansion and a resurgence of Covid-19 cases due to spread of any new virus strains will remain key monitorables.