The Fiscal 2022 is set to see a robust YoY growth of ~78% in domestic air passenger traffic and ~164% in international air passenger traffic due to the rising leisure travel and gradual opening up of corporate offices and low base of FY2021. The growth assumption is based on non-availability of Covid-19 vaccine on a wide scale up to H2 CY2021.
However, this will still be significantly lower than even FY2016 levels. If a vaccine is launched earlier with reasonable availability, domestic air passenger traffic could witness a further upside in FY2022, with an estimated growth of ~93%, and international air passenger traffic could witness an estimated growth of ~235%.
“With an improvement in passenger traffic in FY2022, ICRA expects the Indian aviation industry to report a YoY growth of ~57% in revenues, with the industry’s net loss reducing to ~Rs. 146 billion from an estimated net loss of ~Rs. 210 billion in FY2021. The debt levels will remain high for the industry and are estimated to be range bound at around Rs. 500 billion (excluding lease liabilities) in FY2021 and FY2022, with the industry requiring an additional funding of Rs. 350-370 billion over FY2021 to FY2023. Despite an improvement in the credit metrics (interest coverage – 0.3x and debt/OPBDITA – 40.5x), they will remain stressed in FY2022,” Kinjal Shah, Vice President, ICRA Limited, said.
The recovery in domestic air passenger traffic is contingent on five factors – containment of the spread of Covid-19, which in turn is dependent on the development of a vaccine and its wide availability, willingness of consumers to undertake leisure travel, recovery in macroeconomic growth, which in turn impacts consumer sentiments and ability to travel, Central and various state government-mandated travel restrictions and quarantine norms, and recovery in business travel. Continuous addition of fresh Covid-19 positive cases, and concerns over non-availability of a vaccine on a wide scale until H2 CY2021 will continue to impact consumers’ willingness to undertake leisure travel and even business travel as corporates continue their work-from-home policy. Besides, the recent reports of a new virus strain and consequent temporary suspension of flights from the UK to India by the Government of India is an additional concern.
The impact of the pandemic will be more profound and last longer on international travel compared to domestic travel. The recovery in international travel is also contingent on the opening of scheduled international operations by the Government of India, the macroeconomic impact on 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. While the Indian aviation industry has not been the beneficiary of the stimulus package announced by the Government of India, any financial support in terms of reduction in levies and taxes will aid the sector.
