ICRA upgrades outlook on Indian aviation industry to 'stable' from 'negative'

ICRA expects domestic-passenger traffic to reach 145-150 million in FY24, which is “much-higher” than the pre-pandemic levels. (Photo by Pixabay/Pexels)

With fast recovery seen in domestic-passenger traffic this fiscal and with an expectation of this trend to continue into the next (FY24), ratings agency ICRA has revised its outlook on the Indian aviation industry to ‘stable’ from the earlier ‘negative’.

The agency expects domestic-passenger traffic to reach 145-150 million in FY24, which is “much-higher” than the pre-pandemic levels. In a press statement, ICRA stated that this traffic is likely to grow at 8-13 percent in FY24, after the 55-60 percent growth in FY23. International passenger-traffic is expected to surpass pre-Covid levels in FY23 itself and then exceed its peak traffic-level, which it touched in FY19.

Besides this healthy growth in demand, another reason ICRA cited for its change in outlook is the industry’s improved pricing power.

Also read: In January, domestic passenger traffic nearly doubles YoY on a low base

The industry’s improved pricing power is “reflected in the healthier yields and thus the revenue per available seat kilometer-cost per available seat kilometer (RASK-CASK) spread of the airlines”, according to the agency. ICRA expects the improved yields too 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."

Despite these positives, industry’s earnings recovery will be gradual because the high fixed costs involved in the business, according to Supriyo Banerjee, Vice President and Sector Head – Corporate Ratings, ICRA Limited.

Also read: Indian aviation in 2023: Charting the way forward

ATF and currency headwinds will continue to weigh on the bottomline, though losses will shrink. In FY22, the industry suffered a loss of Rs 235 billion. In FY23, that is estimated to shrink to Rs 110-130 billion, by ICRA. This reduction in losses will be driven “primarily… by the improved ability of the airlines to shore up their yields without impacting the demand”. The agency expects the net loss to further fall to Rs 50-70 billion in FY24, “as airlines continue to witness healthy passenger traffic growth and improve their RASK-CASK spread through better pricing discipline.”