Aviation industry’s losses to shrink 82% YoY in FY24: ICRA

Select airlines will be under more stress than peers, the ICRA’s commentary said.

Losses at Indian aviation industry are estimated to have fallen by more than 21 percent year-on-year to Rs 170-175 billion in FY23 from Rs 217 billion in FY22, according to ICRA. They are expected to shrink further by 82 percent YoY to Rs 30-50 billion in FY24, with healthy passenger-traffic growth and pricing discipline, following the consolidation in the industry, the agency added in its views on monthly domestic passenger traffic data for August 2023.

The rating agency’s outlook on the Indian aviation industry is Stable on the back on the back of the fast-paced recovery in domestic passenger traffic in FY23 and expectations of the trend continuing in FY24.

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Its commentary added that “the industry witnessed improved pricing power, reflected in the improved yields and thus the revenue per available seat kilometre – cost per available seat kilometre (RASK-CASK) spread of the airlines. The same is expected to continue with a YoY decline in aviation turbine fuel (ATF) prices since April 2023 and the relatively stable foreign exchange rates”.

The price of Aviation Turbine Fuel (ATF) and depreciation of rupee vis-à-vis the US dollar are still weighing on the sector. “The average ATF prices stood at Rs. 121,013/KL in FY2023 and Rs. 98,892/KL in 6M FY2024 compared to Rs. 64,715/ KL in FY2020. Fuel cost accounts for ~30-40% of the airlines’ expenses, while ~45-60% of the airlines’ operating expenses – including aircraft lease payments, fuel expenses and a significant portion of aircraft and engine maintenance expenses – are denominated in US$ terms. Further, some airlines have foreign currency debt,” stated the agency.

“While domestic airlines have a partial natural hedge to the extent of earnings from their international operations, overall, their net payables are in foreign currency. The airlines’ efforts to ensure fare hikes, proportionate to their input cost increases, will be the key to expand their profitability margins,” it added.

Select airlines will be under more stress than peers, the ICRA’s commentary said. “While some airlines have adequate liquidity and/or financial support from a strong parent, supporting their credit profile, the credit metrics and liquidity profile of the others will remain under stress over the near term, notwithstanding some improvement relative to the last few years.”