Domestic passenger traffic for Indian carriers recorded a healthy year-on-year (YoY) growth of 57.7% to 84.2 million in FY2022 thanks to the rapid pace of vaccination, to the decline in the incidence of new Covid infections, coupled with the decline in the intensity of infection.
On a yearly basis, in the first quarter of FY2023, domestic passenger traffic grew 2.4 fold to 32.5 million while it was 7% short of pre-Covid level (first quarter of fiscal 2020). With the operating environment returning to normal driven by the waning effect of the pandemic, domestic passenger traffic is expected to experience year-on-year growth of 52-54% in fiscal 2023.
Commenting on the findings, Suprio Banerjee, Vice President and Sector Head, ICRA, said, “A rapid recovery in domestic passenger traffic is expected in fiscal 2023, aided by improving demand in segments leisure and business trips. This is attributed to the declining level of infection and the resulting normality in the operating environment. Despite an expected improvement in passenger traffic, the industry is expected to report a net loss of INR 150-170 billion in FY 2023 (compared to an estimated net loss of INR 230 billion in FY 2023). 2022), due to the increase in Aviation Turbine Fuel (ATF) and the recent depreciation of the INR against the USD, both of which have a major impact on the cost structure of airlines. »
“During Fiscal 2023, cost headwinds drove airfares higher, with domestic returns in the first quarter of Fiscal 2023 expected to be up 25-30% from pre-Covid levels. . Although the Ministry of Civil Aviation (MoCA) has removed fare restrictions effective August 31, 2022, a sharp increase in airfares will be discouraged by intense competition and airlines’ efforts to maintain and/or expand their market shares. With the industry’s debt levels declining towards the end of FY2022 due to Air India Limited’s significant debt reduction prior to its sale, interest expense for FY2023 is expected to be lower. Industry debt levels are expected to be around INR 1 trillion (including lease debts) as of March 31, 2023,” Banerjee added.
ICRA expects domestic passenger traffic to return to pre-Covid levels by FY2024. Further, 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 (4.03x annual growth in the first quarter of FY2023) due to pent-up demand and is expected to reach or slightly exceed pre-Covid levels in fiscal year 2023.
One area of concern is the high ATF prices, which are currently at INR 124,400/KL compared to an average of INR 74,171/KL in FY 2022, which is a direct result of the increase in crude oil prices due to ongoing geopolitical issues. (Russian invasion of Ukraine). That aside, the recent depreciation of the INR against the dollar will have a major impact on the cost structure of airlines as 35-50% of airline operating expenses – including operating lease payments , fuel expenses and a significant portion of aircraft and engine maintenance expenses – is denominated in USD.
Apart from that, some airlines also have foreign currency debts. Despite the significant improvement in passenger traffic, the Revenue-per-Available-Seat-Kilometer-Cost-Per-Available-Seat-Kilometer (RASK-CASK) gap for Indian carriers in FY2023 is expected to be unfavorable, due to the strong rising costs and the limited ability of airlines to pass the same on to customers.
On a global basis, a return to normal will lead to a recovery in passenger load factors, which in turn will contribute to revenues; however, high ATF prices and depreciating INR will continue to weigh on Indian carriers’ revenue in FY23. a low-cost carrier, Akasa Air, are expected to intensify. competition from Indian carriers.