Icra expects the aviation industry to continue its rapid recovery through H2 of FY24

 Icra expects the aviation industry to continue its rapid recovery through H2 of FY24

In New Delhi: According to ratings agency Icra, the rapid rebound in domestic air passenger traffic is anticipated to continue into the second half of the current fiscal year.

Icra predicts that there will have been 12.3 million domestic air travelers in September. Despite being 1.3% lower than August, this is still close to 19% higher than the same time last year and around 7% higher than the pre-covid figure for September 2019.

Domestic air travel increased by 20% from April to September compared to the same time last year and by 7% over the equivalent period in 2019.

Although the civil aviation ministry also releases daily air traffic data for the domestic aviation sector, the Indian civil aviation regulator Directorate General of Civil Aviation has yet to release official monthly numbers for air traffic.

for the strength of the swift rebound in domestic passenger traffic in FY2023 and H1 FY2024 and predictions that the trend would continue in H2 FY2024, Icra's view for the Indian aviation sector remains solid. Additionally, the rating agency noted that the sector had better pricing power, which was seen in the increased yields and, therefore, the revenue per available seat kilometer (RASK-CASK) spread of the airlines.

Despite a healthy rebound in air passenger traffic, ICRA has reiterated that the domestic aviation industry still faces difficulties due to high aviation turbine fuel prices and the Indian rupee's decline against the US dollar since Covid, both of which have a significant impact on the cost structure of the airlines.

The cost of fuel represents roughly 30–40% of airline expenses, and nearly 45–60% of operating costs, which include fuel costs, lease payments for aircraft, and a sizable portion of costs for maintaining aircraft and engines, are expressed in US dollars.

In comparison to an average of 65,368 per kiloliter in 2019–2020, the cost of jet fuel stood at 121,013 per kiloliter in 2022–2023 and at 101,833 per kiloliter so far in the current fiscal year.

On October 1st, Delhi's jet fuel costs increased for a fourth consecutive month to reach 118,199.17 per kilolitre (kl), a 32% increase over June. In order to offset the increase in fuel costs, Indian airlines have begun adding a fuel premium to rates. With a 63% market share, IndiGo is the biggest airline; it has declared a 300–1,000 fuel premium. SpiceJet, another low-cost airline, has also stated that it would apply a portion of the fuel tax.

"While domestic airlines have a partial natural hedging to the degree of profits from their overseas operations, generally, their net earnings are in foreign currencies. The key to increasing the airlines' profit margins will be to ensuring rate rises that are appropriate to their input cost increases, Icra said.

Icra remained certain that it expects Indian airlines to cut their losses to $30–$50 billion in 2023–2024 (Apr–Mar) as a result of disciplined pricing, stable increase in passenger traffic, and industry consolidation. Icra estimates that the sector suffered a net loss of about 170–175 billion in 2022–2023 and a net loss of nearly 217 billion in 2021–2022 respectively.