The domestic airline industry is expected to post a net loss of around 15,000-17,000 crore in this fiscal year due to the rising price of aviation turbine fuel (ATF) and a weak rupee, according to a report on Wednesday.
In its report, credit rating agency Icra said the industry’s losses in the previous financial year were estimated at Rs 23,000 crore.
However, debt levels for the industry are expected to be in the region of Rs 1 crore (including lease obligations) as on March 31, 2023, according to the rating agency.
Any positive or negative movement in the rupee against the US dollar and any increase or decrease in the price of jet fuel has a significant impact on the cost structure of airlines as in India, ATF represents about 45 per cent of an airline’s operating cost while up to 35-50 percent of airline operating expenses are paid in US dollars.
Two listed airlines – IndiGo and SpiceJet – reported losses of Rs 1,064 crore and Rs 789 crore respectively in the June quarter of FY23, mainly due to a weaker rupee and higher jet fuel prices.
According to Icra, the domestic passenger traffic of Indian airlines has reported a healthy growth of 57.7 percent year-on-year at 84.2 million in FY22 on the back of the rapid pace of vaccination, lower incidence of new Covid infections, along with declining severity. from infection.
“Despite the expected improvement in passenger traffic, the industry is estimated to post a net loss of around Rs 150-170 billion in FY 2023 (versus an estimated net loss of Rs 230 billion in FY 2022), due to higher and recent ATF prices. “The depreciation of the Indian rupee against the US dollar, both of which have a significant impact on the cost structure of airlines,” said Subrio Banerjee, Vice President and Sector Head, Icra.
On an annual basis, in Q1 FY23, domestic passenger traffic was 2.04 times higher at 32.5 million while it was around 7 percent short compared to the pre-COVID level (Q1 FY2020).
The rating agency said that as conditions return to normal in the operating environment driven by the waning impact of the pandemic, domestic passenger traffic is expected to experience annual growth of 52-54 percent in fiscal year 23.
She added, “A rapid recovery in domestic passenger traffic is expected in the 2023 financial year, supported by improved demand in the leisure and business travel sectors. This is attributed to the decline in the infection level and the consequent return to normal in the operating environment.”
In the current fiscal, cost headwinds have driven up airfares, with first-quarter domestic revenue expected to be 25-30 percent above pre-Covid levels.
Ikra said that while the Ministry of Civil Aviation has suspended the price restrictions from August 31, the intense competition will deter a sharp rise in airfares due to intense competition and efforts by airlines to maintain and/or expand market shares.
With the decline in industry debt levels at the end of FY22 due to the marked reduction in Air India Limited’s pre-sale debt, the interest burden in FY23 is expected to be lower.
Icra said it expects a recovery in domestic passenger traffic to pre-Covid levels by fiscal year 24.
Moreover, with the resumption of scheduled international air operations of Indian airlines since March 27, 2022 and the return to the bilaterally agreed capacity entitlements, the international passenger traffic of Indian airlines is on a strong growth path due to pent-up demand and is expected to reach pre-Covid levels or It marginally surpassed it in fiscal year 23, according to the rating agency.
However, one area of concern is the rise in ATF prices, which are currently around Rs 124,400/KL compared to an average of Rs 74,171/KL in the previous year, which is a direct result of the increase in crude oil prices due to geopolitical issues, he said. Ongoing like the war between Russia and Ukraine.
Apart from this, the recent depreciation of the Indian rupee against the US dollar will have a significant impact on the cost structure of the airlines, she said, adding that besides this, some airlines also have foreign currency debts.
Despite the significant improvement in passenger traffic, revenue per available seat kilometer (RASK-CASK) for Indian airlines in fiscal year 23 is expected to be unfavorable, due to high costs and limited capacity for ICRA. That airlines would pass the same on to customers.
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