Domestic Air Travel To Remain Robust This Fiscal Despite Losses, Says ICRA Report

The momentum in domestic air passenger traffic is expected to persist, with airlines projected to incur a net loss of Rs 3,000-4,000 crore for the fiscal ending March 2025. These projections mirror trends observed in the previous financial year, according to an ICRA report released on Tuesday.

In June, domestic air passenger traffic was estimated at 132.8 lakh, a slight decrease of 3.7% from May, but showing a 6.3% increase compared to the same period last year.

ICRA stated that the outlook for India's aviation industry remains stable, supported by ongoing recovery in both domestic and international air travel. The industry benefits from a relatively stable cost environment, and these trends are anticipated to continue into fiscal 2025.

"The momentum in air passenger traffic witnessed in FY24 is expected to continue into FY2025, though further expansion in yields from the current levels may be limited," it noted.

According to its report, the pace of recovery in industry earnings is likely to be gradual owing to the high fixed-cost nature of the business and the net loss is expected to be Rs 3,000-4,000 crore this fiscal as seen in the previous financial year.

While mentioning about supply chain issues, Icra said it is estimated that 24-26% of the total fleet of Indian airlines in operations was grounded by March 31, 2024.

Considering the bulk recall of the engines globally by P&W and other existing issues with the original equipment manufacturer's engines, the testing by P&W is likely to take longer, around 250-300 days.

"This will result in increased operating expenses towards the cost of grounding, increased lease rentals due to additional aircraft being taken on lease to offset the grounded capacity, rising lease rates and lower fuel efficiency (due to replacement by older aircraft taken on spot lease), which will adversely impact an airline's cost structure," the report said.

However, healthy yields, high passenger load factor and partial compensation available from engine Original Equipment Manufacturers would help absorb the impact to an extent.

In the current fiscal, the report said the industry has also faced challenges related to the availability of pilots and cabin crew, leading to several flight cancellations and delays. Such issues impact the capacity availability and add to customer grievances, it added.

In the first quarter of this fiscal, domestic air passenger traffic was around 402.7 lakh with an annual 4.4% growth.

"The airlines' ability to raise yields proportionate to their input cost increases will be key to expand their profitability margins," the report said.

(With inputs from PTI)