Indian aviation industry to report net loss of Rs. 250-260 billion in FY2022 : ICRA

Indian aviation industry to report net loss of Rs. 250-260 billion in FY2022 : ICRA

Domestic aviation is expected to experience strong year-on-year growth of 45-50% in domestic air passenger traffic and 80-85% in international air passenger traffic in FY2022, albeit on a lower base than in FY2021 and fueled by increased vaccination rates and gradual relaxation of regulatory restrictions. However, growth will remain much lower than that of FY2016 and FY2013, and the industry is likely to suffer a larger net loss in FY2022, according to an ICRA analysis.

According to Ms. Kinjal Shah, Vice President and Co-Group Head at ICRA Limited, "with the reappearance of the second wave of the pandemic, passenger traffic recovery will be sluggish, with domestic passenger traffic likely to reach pre-Covid levels only in FY2024." Increased ATF prices (up 71% year over year in 5M FY2022) and fare caps continue to be a drag on airlines' profitability. Thus, in FY2022, the Indian aviation industry is predicted to incur a net loss of Rs 250-260 billion. The industry's debt levels would remain elevated and are expected to reach Rs. 1200 billion (including lease liabilities) in FY2022, necessitating additional finance of Rs. 450-470 billion from FY2022 to FY2024.”

Domestic air passenger traffic recovery is contingent on the following five factors: vaccination rate, consumer willingness to travel for leisure, macroeconomic recovery, which affects consumer sentiments and ability to travel, Central and various state government-mandated travel restrictions and quarantine norms, and business travel recovery.

The pandemic's influence on overseas travel will be more significant and long-lasting than on domestic travel. In addition to the considerations listed above, the recovery in passenger traffic is dependant on the Government of India's opening of scheduled international operations, the global economy's macroeconomic shock, and other countries' government-mandated travel restrictions and quarantine standards.

In the near term, Indian carriers' balance sheets will remain pressured until they are able to lower their debt burden through a combination of operational improvements and/or equity injection.

As a result, ICRA has maintained a negative assessment on the Indian aviation sector. The majority of airlines have begun fund-raising efforts to stave off a liquidity crisis because by the cash burn caused by the impact on demand and the increase in ATF costs.