The domestic aviation industry is expected to witness a strong Y-o-Y growth of ~45-50% in domestic air passenger traffic and ~80-85% in international air passenger traffic during FY2022, albeit on a lower base of FY2021 and driven by the faster pace of vaccination and gradual relaxations in restrictions by the regulatory authorities.
However, the growth will still be significantly lower than even the FY2016 and FY2013 levels, respectively; and the industry is expected to report a higher net loss in FY2022, says an ICRA note.
According to Kinjal Shah, Vice President and Co-Group Head, ICRA Limited: “Given the resurgence of the second wave of the pandemic, the recovery in passenger traffic will only be gradual, with the domestic passenger traffic expected to reach pre-Covid levels only by FY2024. Elevated ATF prices (higher by 71% on Y-o-Y basis in 5M FY2022) and fare caps continue to pose a challenge for the profitability of the airlines. Thus, the Indian aviation industry is expected to report a net loss of ~Rs 250-260 billion in FY2022. The debt levels will remain high for the industry and are estimated to increase to ~Rs. 1200 billion (including lease liabilities) in FY2022, with the industry requiring an additional funding of Rs. 450-470 billion over FY2022 to FY2024.”
The recovery in domestic air passenger traffic is contingent on the following five factors – pace of vaccination, willingness of consumers to undertake leisure travel, recovery in macroeconomic growth, which in turn impacts consumer sentiments and the ability to travel, Central and various state government-mandated travel restrictions and quarantine norms, and recovery in business travel.
The impact of the pandemic will be more profound and long lasting on international travel, compared to domestic travel. In addition to the above factors determining the recovery in passenger traffic, the recovery in international travel is also contingent on the opening up of scheduled international operations by the Government of India, the macroeconomic shock to the global economy and the Government-mandated travel restrictions and quarantine norms of various countries.
In the near term, the balance sheets of Indian carriers will remain stressed until the carriers are able to reduce their debt burden through a combination of improvement in operating performance and / or through equity infusion. ICRA has thus maintained its Negative credit outlook on the Indian aviation industry. Most airlines have initiated fund-raising plans to tide over the liquidity crisis stemming from the cash burn due to impact on demand and increase in ATF prices.
