• Wed. Oct 5th, 2022

Domestic airline industry could report loss of up to Rs 17k-cr in FY23: report

ByKimberly A. Brochu

Sep 7, 2022

The domestic airline industry is expected to record a net loss of around Rs 15,000-17,000 crore this financial year due to the high price of aviation jet fuel (ATF) and weak Rupee, according to a published report. Wednesday.

Industry losses in the previous financial year were estimated at around Rs 23,000 crore, credit rating agency Icra said in its report.

However, the industry’s debt levels are expected to be around Rs 1 lakh crore (including lease debts) as of March 31, 2023, according to the rating agency.

Any positive or negative movement of the Rupee against the US Dollar and any increase or decrease in jet fuel prices have a major impact on the cost structure of airlines as in India ATF accounts for around 45% of the cost of operation of an airline while up to 35-50% of airline operating expenses are driven by the US dollar.

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 weak rupee and rising jet fuel prices.

According to Icra, domestic passenger traffic for Indian carriers recorded healthy growth of 57.7% year-on-year to 84.2 million in FY22 thanks to the rapid pace of growth. vaccination, to the lower incidence of new Covid infections, associated with the lower intensity of infection.

“Despite an expected improvement in passenger traffic, it is estimated that the industry will report a net loss of around Rs 150-170 billion in FY 2023 (compared to an estimated net loss of Rs 230 billion in FY2023). fiscal year 2022), due to high ATF prices and the recent depreciation of the Indian Rupee against the US Dollar, both of which have a major impact on the cost structure of airlines” , said Suprio Banerjee, Vice President and Sector Head, Icra.

On an annual basis, in the first quarter of FY23, domestic passenger traffic increased 2.04 times to 32.5 million while it was approximately 7% lower than the pre-Covid level (first quarter of FY20).

With the operational environment returning to normal driven by the waning effect of the pandemic, domestic passenger traffic is expected to grow 52-54 percent year-on-year in FY23, the FY23 said. rating agency.

“A rapid recovery in domestic passenger traffic is expected in fiscal 2023, aided by improving demand in the leisure and business travel segments. infection and the resulting normality in the operating environment,” he added.

In the current fiscal year, cost headwinds have driven air fares higher, with domestic yield in the first quarter expected to be up 25-30% from pre-Covid levels.

While the Civil Aviation Ministry removed fare restrictions effective Aug. 31, a sharp rise in airfares will be deterred by intense competition and airlines’ efforts to maintain and/or expand market share, it said. said Icra.

With the industry’s debt levels declining towards the end of FY22 due to Air India Limited’s significant debt reduction prior to its sale, FY23 interest expense is expected to be lower.

Icra said it expects domestic passenger traffic to recover to pre-Covid levels by FY24.

Furthermore, with the resumption of scheduled international air operations for Indian carriers since March 27, 2022 and the return to bilaterally agreed capacity rights, international passenger traffic for Indian carriers is on a strong growth trajectory due to the pent-up demand and is expected to reach or slightly exceed pre-Covid levels in FY23, according to the rating agency.

However, a matter of concern is the high price of ATF, which currently stands at 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 rise in crude oil prices due to ongoing geopolitical issues such as the Russian-Ukrainian war, he said.

That aside, the recent depreciation of the Indian rupee against the US dollar will have a major impact on the cost structure of airlines, he said and added that that aside, some airlines also have foreign currency debts.

Despite the significant improvement in passenger traffic, the gap between revenue per available seat kilometer and cost per available seat kilometer (RASK-CASK) for Indian carriers in FY23 is expected to be unfavorable, due to the steep rise in costs and the limited ability of airlines to pass the same on to customers, Icra noted.

(Only the title and image of this report may have been edited by Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)