Domestic Aviation Sector Outlook Stable; Losses To Reduce Next Fiscal: Icra

Rating agency Icra on Monday revised the outlook for the country's aviation sector to stable from negative, citing fast-paced recovery in the domestic air passenger traffic.

The industry's loss in the current financial year is projected to be Rs 11,000 crore to Rs 3,000 crore and reduce to Rs 5,000 to Rs 7,000 crore in the next fiscal, it said in a report.

While noting that the trend of passenger traffic is expected to continue in FY24, the agency said the industry has also witnessed improved pricing power, as reflected in the healthier yields and thus the revenue per available seat kilometre-cost per available seat kilometre spread of the airlines.

"The same is expected 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," it said in the report.

The outlook for the sector has been revised to stable from negative, Icra said, adding that domestic passenger traffic growth is estimated at "8-13 per cent next fiscal, post the 55-60 per cent expansion in FY2023, to reach 145-150 million, which is much higher than the pre-Covid levels".

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 per cent 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 per cent next fiscal after the 125-130 per cent expansion in FY23.

Suprio Banerjee, Vice President & Sector Head – 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 Rs 110-130 billion in FY2023 due to elevated ATF prices twined with the depreciation of the rupee against the US dollar. However, the same is much lower than the net loss of Rs 235 billion in FY2022 and Icra's earlier estimated net loss of Rs 150-170 billion 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 Rs 50-70 billion in FY2024, as airlines continue to witness healthy passenger traffic growth and improve their RASK-CASK spread through better pricing discipline," he said.